What this calculator does
Yield and payout answer two different questions. Yield is what the dividend is worth relative to the price you pay, and it changes every time the share price moves. Payout is what proportion of earnings the dividend consumes, and it does not.
That distinction matters because a rising yield often means a falling price rather than a rising dividend. The payout ratio is the figure that tells you whether the dividend is actually sustainable out of what the company earns.
The formula
Yield divides the annual dividend per share by the share price. Payout divides it by earnings per share, and dividend cover is the inverse of payout, expressed as how many times earnings cover the dividend.
| Term | Meaning |
|---|---|
| Dividend yield | Annual dividend as a percentage of the current share price. |
| Payout ratio | The share of earnings paid out as dividends. |
| Dividend cover | Earnings divided by dividend. Above 2 is generally considered comfortable. |
The inputs explained
| Field | What to enter |
|---|---|
| Annual dividend per share ($) | The annual dividend per share. |
| Share price ($) | The current share price. |
| Earnings per share ($) | Earnings per share over the same annual period. |
When to use it
Comparing income investments
Yield puts dividends from shares at different prices on a common basis.
Checking whether a dividend is safe
A payout ratio approaching or exceeding 100 per cent means the dividend is not being funded from current earnings.
Understanding a yield that looks too good
An unusually high yield often reflects a price the market has marked down for a reason.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the share price change the yield?
The same dividend and earnings at three share prices.
Questions
Is a high dividend yield a good sign?
Not necessarily. Yield rises when the price falls, so an unusually high yield frequently signals that the market expects the dividend to be cut. Checking the payout ratio and cover alongside it is essential.
What payout ratio is sustainable?
Broadly, 40 to 60 per cent leaves room to reinvest and to maintain the dividend through a weaker year. Above 80 per cent leaves little margin, and above 100 per cent means the company is paying out more than it earns.
Can the payout ratio exceed 100 per cent?
Yes, and companies sometimes do it temporarily to maintain a dividend through a bad year, funding it from cash reserves or borrowing. Sustained over several years it is not viable.
Why is retention ratio worth knowing?
Because retained earnings fund future growth. The retention ratio multiplied by return on equity gives the sustainable growth rate, which links dividend policy directly to how fast the business can expand.
For valuing a share from its dividend stream, see the dividend discount model calculator. For how retention drives growth, see the sustainable growth rate calculator.