The income a holding produces
Dividends are cash paid out of profits to shareholders. This calculator turns a position and a yield into the income it generates, broken down by the periods dividends are actually received in.
The formula
Worked example: $100,000 at a 4% yield
- Annual income: $4,000
- Quarterly: $1,000
- Monthly equivalent: $333
Most United States companies pay quarterly, most United Kingdom companies semi-annually, and a few funds monthly. The annual figure is the same; the cash flow is not, which matters if the income is being spent rather than reinvested.
Reinvesting changes the arithmetic entirely
| Years | Income taken | Reinvested at 4% |
|---|---|---|
| 10 | $100,000 held, $40,000 received | $148,024 |
| 20 | $100,000 held, $80,000 received | $219,112 |
| 30 | $100,000 held, $120,000 received | $324,340 |
Over thirty years, reinvesting turns $120,000 of income into $224,340 of growth. That gap is the entire case for dividend reinvestment, and it assumes no change in the share price at all.
Yield is a ratio, and the price is the denominator
A yield rises when the price falls. A stock whose dividend is unchanged but whose price halved now yields 8%, and that is usually a warning rather than an opportunity.
Check the payout ratio: dividends as a share of earnings. Below 60% is generally sustainable; above 100% means the company is paying out more than it earns, which cannot continue.
What this calculator leaves out
Tax. Qualified dividends in the United States are taxed at 0, 15 or 20% depending on income; ordinary dividends at your marginal rate. Withholding tax on foreign shares typically takes another 15% at source.
Also dividend cuts, which are not rare — the yield shown is what was paid, not what will be.
Yield against total return
A 4% dividend is not a 4% return. If the share price falls 6% over the year, the total return is negative 2% despite the income arriving on schedule.
High-yield portfolios are often concentrated in mature, slow-growing sectors — utilities, telecoms, tobacco — where the dividend substitutes for growth rather than adding to it. That is a legitimate strategy for someone spending the income, and a poor one for someone still accumulating, who would usually do better in total-return terms elsewhere.
Building a target income
Run it backwards to size the capital. At a 4% yield, $2,000 a month of dividend income requires $600,000 invested. At 3% it takes $800,000; at 5%, $480,000.
The temptation is to solve the problem by reaching for yield, and that is where dividend investing usually goes wrong. Moving from 4% to 6% cuts the capital needed by a third and typically raises the probability of a cut, which removes the income exactly when the market that caused it is also down.
The dates that decide who gets paid
Four dates govern every dividend. The declaration date is the announcement. The ex-dividend date is the one that matters: buy on or after it and the seller keeps the payment. The record date is when the register is fixed, and the payment date is when cash arrives, typically two to four weeks later.
The share price normally drops by roughly the dividend amount on the ex-date, which is why buying just before it captures no free money. You pay for the dividend in the price, then receive it and owe tax on it.
Related calculators
- Dividend yield calculator — the yield from price and payment
- Payout ratio calculator — whether the dividend is sustainable
- Dividend discount model — valuing a share from its dividends