How to Calculate Rate of Dividend

Rate of Dividend Calculator

Enter this to calculate Dividend Yield as well.

function calculateDividendRate() { // Get input values var dividendInput = document.getElementById('divTotalDividend').value; var faceValueInput = document.getElementById('divFaceValue').value; var marketPriceInput = document.getElementById('divMarketPrice').value; // Clean data var dividend = parseFloat(dividendInput); var faceValue = parseFloat(faceValueInput); var marketPrice = parseFloat(marketPriceInput); // Validation if (isNaN(dividend) || isNaN(faceValue) || dividend < 0 || faceValue 0) { var dividendYield = (dividend / marketPrice) * 100; document.getElementById('yieldRow').style.display = 'flex'; document.getElementById('resDividendYield').innerHTML = dividendYield.toFixed(2) + "%"; } else { document.getElementById('yieldRow').style.display = 'none'; } }

Understanding the return on your stock investments is crucial for building a strong portfolio. While many investors focus on the market price appreciation, dividends play a vital role in generating passive income. This guide explains exactly how to calculate the rate of dividend and differentiates it from dividend yield.

What is the Rate of Dividend?

The Rate of Dividend is a financial metric that expresses the dividend declared by a company as a percentage of the share's Face Value (also known as Par Value). It is important to note that companies declare dividends based on the face value of the share, not the current market price.

This distinction is critical because the face value of a stock usually remains constant (e.g., $10 or $1), while the market price fluctuates daily based on supply and demand.

The Dividend Rate Formula

The mathematical formula to calculate the rate of dividend is straightforward:

Rate of Dividend (%) = (Dividend Per Share / Face Value Per Share) × 100

Where:

• Dividend Per Share (DPS): The total amount of dividends declared per individual share.
• Face Value: The nominal value of the share as stated in the company's charter.

Step-by-Step Calculation Example

Let's assume you own shares in "Tech Corp." Here are the details:

• Face Value of Share: $10
• Dividend Declared: $2 per share
• Current Market Price: $50

To find the Rate of Dividend, we use the formula:

Calculation: ($2 / $10) × 100 = 20%

Tech Corp has declared a 20% dividend. Note that the market price ($50) was not used in this specific calculation.

Rate of Dividend vs. Dividend Yield

Investors often confuse the Rate of Dividend with Dividend Yield. While they utilize the same dividend amount, the denominator is different.

• Rate of Dividend: Calculated on Face Value. Used by the company to declare payout percentages.
• Dividend Yield: Calculated on Current Market Price. Used by investors to compare the return against other investment opportunities.

Dividend Yield (%) = (Dividend Per Share / Current Market Price) × 100

Using the example above: ($2 / $50) × 100 = 4% Yield.

Why Calculate Rate of Dividend?

Calculating the rate of dividend helps investors understand the generosity of a company relative to its original capital structure. High dividend rates on face value indicate a company is sharing a significant portion of its profits with shareholders, although the actual yield realized by an investor buying at market price might be lower.