How dividends are calculated
The annual dividend is the amount invested times the dividend yield: $10,000 at 4% pays $400 a year, about $33 a month, before taxes. The dividend yield is the annual dividend per share divided by the price; you can find it on the Valuation page of each company.
- Dividends for the year = shares held × dividend per share × (1 − tax rate)
- With reinvestment, net dividends buy new shares at year end, which pay dividends themselves from the following year
- Yield on cost = final annual dividend ÷ total invested
Example
$10,000 at a 4% yield, with the dividend growing 5% a year and the price 3%, dividends reinvested and no taxes: the first year you receive $400. Over 10 years dividends add up to about $6,170; at the end the annual dividend is about $990 and the portfolio is worth about $20,360.
Assumptions
Dividend and price growth are constant, dividends are received and reinvested once a year, with no fees. In reality dividends can be cut and prices can fall: this is a projection, not a forecast.
Dividend taxes
Dividends are taxed differently in each country, and foreign dividends are usually subject to withholding tax in the company's country, partly recoverable under tax treaties. Enter your overall rate to see net income.