Dividend yielddividend yield and yield on cost

Dividend yield shows what percentage of the share price a company pays out to shareholders as dividends over a year. It is the core measure for investors who want a regular income from their portfolio.

Example: a company pays a 4 PLN dividend per share and its shares cost 80 PLN. The dividend yield is 5%. If the price drops to 50 PLN with the same dividend, the yield rises to 8%: a high yield can signal an opportunity, but also a warning that the market expects the payout to be cut.

Yield on cost

Yield on cost relates the current dividend to the price you paid. If you bought at 50 PLN and the company now pays 4 PLN, your yield on cost is 8%, regardless of today’s price. It shows well how dividends from shares bought long ago have grown, but it is not suited to comparing investments, because it ignores their current value.

Things to keep in mind

• Trailing yield is based on payouts over the last 12 months, forward yield on the company’s announcements.
• A dividend is not a free gain: on the ex-dividend date the share price usually drops by its amount.
• Dividends are taxed. In Poland the rate is 19%, and for foreign companies part of it is withheld at source, e.g. 15% in the US once a W-8BEN form is filed.
• The full picture comes from a return that includes dividends, not from the dividend yield alone.