Dividend Rate of Return Calculator
Investment Summary
Yield on Cost:
Current Yield:
Capital Gain:
Annual Income:
Total Annual Rate of Return
Understanding Dividend Rate of Return
The Dividend Rate of Return (often referred to as Total Return) is a critical metric for income-focused investors. Unlike simple price appreciation, this calculation accounts for both the change in the stock price and the cash flow generated through dividends.
Key Definitions
- Yield on Cost: This is the annual dividend divided by your original purchase price. It shows the efficiency of your initial investment over time.
- Current Yield: The annual dividend divided by the current market price. This is what a new investor would receive today.
- Total Rate of Return: The most comprehensive metric, combining capital gains and dividend income as a percentage of your initial investment.
Calculation Formula
Total Return % = [((Current Price – Purchase Price) + Dividends) / Purchase Price] x 100
Example Scenario
Imagine you purchased 50 shares of a utility stock at $50.00 per share. Over the year, the price rises to $55.00, and the company pays an annual dividend of $2.00 per share.
- Capital Gain: $5.00 per share ($250 total)
- Dividend Income: $2.00 per share ($100 total)
- Total Return: ($5 + $2) / $50 = 14% Total Return
While the stock price only grew by 10%, your actual rate of return was 14% thanks to the dividend payments.