- What is dividend yield?
- Dividend yield = Annual Dividend Per Share / Share Price × 100. A stock with a $2.00 annual dividend trading at $50 has a 4% yield. Yield changes constantly as the share price moves, even if the dividend stays the same.
- What is yield on cost?
- Yield on cost (YOC) is your dividend income as a percentage of your original cost basis, not the current share price. If you bought a stock at $25 and the annual dividend has grown to $2.00, your YOC is 8% even if the current yield is 4%. YOC is a useful measure of how a long-held investment performs.
- Are dividends reliable income?
- Dividends can be cut or eliminated, especially during economic downturns. Companies with a long track record of growing dividends ("dividend aristocrats" have raised their dividend for 25+ consecutive years) are generally more reliable. Diversifying across multiple dividend payers reduces single-stock risk.
- How are dividends taxed?
- Qualified dividends (from US corporations held for more than 60 days) are taxed at preferential long-term capital gains rates (0%, 15%, or 20% depending on income). Ordinary dividends are taxed as regular income. In tax-advantaged accounts (IRA, 401k), dividends grow tax-deferred or tax-free.
