Dividend Calculator

About the Dividend Calculator

Dividend investing is surrounded by one persistent confusion: yield is not return.

Yield is dividends divided by price, and price is the denominator. When a share falls 40%, its yield rises by two-thirds without the company paying a penny more. Which is why the highest yields on any stock screen are disproportionately companies in trouble — and why a yield can rise for one good reason and several bad ones while looking identical either way.

This dividend calculator reports the three things that actually matter: yield on cost, reinvested against taken, and total return.

How to Use the Dividend Calculator

Enter the amount invested and the dividend yield.

Dividend grows by is how fast the payment itself rises — this is what lifts yield on cost over time, and it is a different number from the share price.

Share price grows by can be negative, and entering a negative figure with a high yield is the fastest way to see what a yield trap does.

Dividends are reinvested or taken as income. The calculator shows both regardless, so you can see what the choice costs.

Step-by-Step Example

£50,000 at a 4% yield, dividend growing 5% a year, price growing 3%, held 20 years, reinvested.

  First year income:        2,000.00
  Year 20 income:           5,205.52   (if taken)

  Reinvested total:       231,967.93
  Taken:                   90,305.56 held + 68,115.87 income
                          = 158,421.43

  Reinvesting is worth:    73,546.51

Yield on Cost

The quoted yield is measured against today's price. What matters to someone holding for twenty years is the income measured against what they paid.

  Year 20 payment:  5,205.52
  Original cost:   50,000.00
  Yield on cost:       10.41%

A 4% starting yield became a 10.41% yield on cost, and nothing dramatic happened — the dividend simply grew 5% a year.

That is the case for dividend growth over dividend size, and it is completely invisible in any quoted yield figure. It is also why income investors decades from retirement and those already in it should not be looking at the same shares: over a long holding period growth wins, over a short one the starting yield dominates.

Reinvesting Against Taking the Income

  Reinvested:  231,967.93
  Taken:       158,421.43
               ──────────
  Difference:   73,546.51

Reinvestment buys more units, which pay more dividends, which buy more units. Over twenty years the gap is larger than the entire income stream taken.

The timing matters too. Taking the income for a few years early on costs far more than taking it later, because those are the payments with the longest left to compound. Taking the income is a legitimate trade in retirement and an expensive one before it.

The Yield Trap

Now the same £50,000 at a 9% yield, with the dividend flat and the price falling 4% a year:

  First year income:     4,500.00
  Year 20 income:        4,320.00   ← falling, not rising
  Yield on cost:             8.64%  ← below the 9% you started at

  Total return:              3.95% a year

Everything about this looks like income investing working. The payments keep arriving, roughly £4,400 a year, every year, for twenty years.

Meanwhile the holding has gone from £50,000 to £22,100.

The 9% yield never fell. It stayed high the entire time — because the price kept falling, which is what was raising it. The yield was not a sign of generosity; it was a readout of the decline.

Two tells the calculator surfaces:

Yield on cost going down. It is supposed to rise. When it does not, the dividend is not growing fast enough to outrun what is happening to the holding.

Total return well below the yield. A 9% yielder returning under 4% is telling you where the other 5% went.

Before Trusting a High Yield

Anything above about 7% deserves a question rather than an allocation:

Is the dividend covered by earnings? A payout ratio over 100% means the company is paying out more than it earns, which is a dividend waiting to be cut.

Why has the price fallen? The yield went up for a reason, and the reason is usually in the last set of results.

Has the dividend been cut before? A history of cuts is the best predictor of another one.

Is it a sector where high yields are normal? Some are, structurally. Compare within the sector, not against the market.

Understanding Your Result

What you end with is the holding, or the holding plus income taken.

The income shows the first payment and the last, and says plainly whether it rose or fell.

Yield on cost is the long-term holder's figure, with a warning when it is going the wrong way.

Reinvested against taken quantifies the choice.

Worth knowing flags a yield trap, an unusually high yield, or what taking the income is costing.

When Should You Use This Calculator?

Before buying for income. Especially anything with an eye-catching yield.

When deciding whether to reinvest. The figure is usually larger than expected.

To compare a high yield against a growing one. Over twenty years the answer is often not the one the screen suggests.

To sanity-check an income plan. What the payment looks like in year twenty matters more than year one.

Common Mistakes

Treating yield as return. It is one component, and the other can be negative.

Chasing the highest yield on the screen. Price is the denominator.

Ignoring dividend growth. Over long periods it beats starting yield.

Comparing yield on cost to a current yield. They measure against different denominators; only compare like with like.

Forgetting tax. Outside a tax wrapper, dividends are taxed as they arrive, which reduces both the income and everything reinvestment would have compounded.

Assuming dividends are safe. They are a discretionary payment, not a contractual one, and the companies with the highest yields are the most likely to cut.

Every figure here is an estimate for planning. Dividends can be cut, share prices fall as well as rise, and this is not financial advice.