Dividend Yield: What It Is, How to Calculate & How to Use It

The dividend yield formula is simple:

Dividend Yield = (Dividends paid per share in the last 12 months / Current share price) × 100

For example, if a stock costs $50 and paid $4 in dividends over the last 12 months, the dividend yield is: (4 / 50) × 100 = 8%.

It's important to note that yield is dynamic: it changes as the stock price fluctuates. If the stock drops to $40 (keeping the same $4 in dividends), the yield rises to 10%. If the stock rises to $80, the yield falls to 5%.

PaxMoney calculates dividend yield automatically for each asset in your portfolio, using dividends actually received. This is more accurate than using market projections, as it reflects your real data.

A common mistake among beginner investors is choosing assets solely based on the highest yield. This strategy can be dangerous for several reasons:

High yield due to price drop: If a stock had a 5% yield and suddenly shows 15%, it might mean the price has dropped drastically — possibly because the company is in financial trouble.

Unsustainable dividends: Some companies pay high dividends temporarily (for example, after selling an asset). This amount isn't sustainable long-term.

High payout ratio: If the company distributes 95% of profits as dividends, very little remains for growth investment. This can compromise future profits and, consequently, future dividends.

What to do: Use dividend yield as one of the criteria, not the only one. Also evaluate payment history, payout ratio, earnings growth, and the company's financial health. PaxMoney helps you visualize your dividend evolution over time, making it easier to identify patterns.

Dividend yields vary significantly across markets:

Brazil: The Brazilian market tends to have higher yields, especially in REITs/FIIs (6-12%) and stocks in sectors like banking, energy, and telecommunications (4-10%). This is because legislation requires minimum profit distribution and historically high interest rates make dividends more competitive.

USA: The American market generally has lower yields (1-4% for most S&P 500 stocks). However, many American companies compensate with consistent dividend growth over decades. Dividend Aristocrats have increased their dividends for 25+ consecutive years.

For investors operating in both markets, PaxMoney is the ideal tool: you track dividends in BRL and USD separately, with filters by currency and asset class, and the AI consolidates everything into unified projections.