The formula
yield = annual dividend ÷ current price × 100
Where it comes from
Yield measures the dividend against a price, and which price you choose changes what the number means. Against today's price it tells you what a new buyer would get; against what you paid, it tells you what your own position returns.
How to work it out by hand
- Multiply the dividend per share by the payments per year
- Divide by the current share price and multiply by 100
- For yield on cost, divide by what you paid instead
- Compare the two to see how the position has moved
What is worth knowing
Yield on cost feels good and decides nothing. It rises whenever the price rises or the dividend grows, and it says nothing about whether holding the share today is a better use of the money than anything else — that question is answered by the current yield, because that is what you would get if you bought it now. Where yield on cost genuinely helps is in showing what dividend growth does over long holdings: a share bought decades ago at a 3% yield can easily be paying 15% on cost, which is the whole argument for dividend growth over headline yield.