Dividend Yield

The dividend yield is the annual dividend divided by the share price - the income a share pays as a percentage of what it costs. It is a ratio, which means the denominator is doing half the work.

MarketsLast reviewed 2026-10-02

What it is

The dividend yield is a share's annual dividend expressed as a percentage of its share price. A $2.20 dividend on a $40 share is a 5.5 percent cash yield; the same dividend on a $35 share is 6.3 percent, because the price fell. The quoted figure is usually the trailing twelve months of dividends against the current price, which is why the yield moves every day the price does.

The Australian layer is franking. A fully franked dividend carries credits for the 30 percent company tax already paid, which lifts the grossed-up yield above the cash yield - a 5.5 percent fully franked cash yield is roughly 7.86 percent grossed-up. The franking credits entry covers the arithmetic. The yield is also not the return: a share paying 6 percent while falling 10 percent a year is a negative total return, which is the part the income marketing omits.

Key takeaways

The dividend yield is the annual dividend divided by the share price.
A rising yield often means a falling price - the denominator is doing the work.
Franking lifts the grossed-up yield above the cash yield for Australian shares.
A 5.5 percent fully franked cash yield is roughly 7.86 percent grossed-up.
Yield is income only; the total return includes the price move.

How it works

The arithmetic is one division. The trailing twelve months of dividends - say $2.20 a share - divided by the current price of $40 produces a 5.5 percent cash yield. The figure recalculates every trading day: the price falls to $35 and the same dividend is suddenly a 6.3 percent yield, without a single decision by the board. The yield is a snapshot of income against price, and the price is the moving part.

The franking layer is the Australian adjustment. A fully franked dividend is grossed up by multiplying the cash by 30/70: $2.20 of cash carries roughly $0.94 of credits, and the grossed-up dividend of $3.14 on a $40 share is a 7.86 percent grossed-up yield. The franking credit calculator runs the adjustment on any dividend, and the dividend yield calculator runs the comparison across holdings. Comparing a franked 5.5 percent cash yield against an unfranked 6 percent from another company is comparing 7.86 against 6.0 - the franking is prepaid tax.

The forward yield is the second comparison basis. The trailing yield uses last year's dividends; the forward yield uses the board's latest declared dividend annualised, which responds to a declared cut faster than the trailing figure. A company that cuts its dividend from $2.20 to $1.50 still shows a trailing 5.5 percent yield for a year while the forward yield has already dropped to 3.75 percent. The forward figure is the honest one, and it is the one that forecasts the income.

Why it matters

For an Australian reader, the yield is the number every income investor quotes and the one most often misquoted. The big banks yield roughly 4 to 6 percent fully franked, which grosses up to 6 to 8.5 percent depending on the marginal rate - arithmetic that makes ASX income look strong against a taxable savings account. MoneySmart guidance treats dividends as part of the total return, and the yield marketing treats them as the whole return. The dividend entry covers the calendar and the franking mechanics behind the figure.

A colleague named Brent (yes, that Brent) bought a miner on a 9 percent trailing yield because the income looked unbeatable. The yield was the commodity cycle at its peak; the dividend was cut 40 percent within a year and the share price fell with it. His income dropped and his capital dropped further - the 9 percent was never the return. The highest-leverage thing most Australians can do is compare on the grossed-up and forward yield, and run the total return through the dividend yield calculator before buying for income.

Real-world examples

The bank share: 5.5 percent cash, 7.86 percent grossed-up

A $40 bank share pays a $2.20 fully franked dividend. The cash yield is 5.5 percent; the grossed-up dividend is $3.14 and the grossed-up yield is 7.86 percent. Against a savings account paying 4.5 percent taxed down to roughly 3.1 percent net at a 32 percent marginal rate, the franked income wins the comparison before any growth is counted. The credits are prepaid tax, not a bonus - the franking credit calculator runs the adjustment.

The falling price inflating the yield

The same $2.20 dividend on a share that falls from $40 to $30 lifts the yield from 5.5 to 7.3 percent without a single decision. The income did not improve; the price fell. A rising yield on a flat dividend is often the market pricing a cut, and the market is usually early. The denominator is the moving part, and the denominator is the risk - which is why the yield alone is never a buy signal.

Trailing versus forward: the dividend cut

The board cuts the dividend from $2.20 to $1.50 a year. The trailing yield still reads 5.5 percent on a $40 share for the next twelve months, while the forward yield - the new dividend annualised - has already dropped to 3.75 percent. The trailing figure is history; the forward figure is the income. Income plans built on the trailing yield inherit the cut a year late, and the dividend yield calculator shows both figures side by side.

Common mistakes

Mistake: Chasing the highest yield on the board.

Why it bites you: A 9 percent yield is usually a falling price rather than a generous board, and the cut follows. Brent's miner paid the yield for a year and took the capital with it.

Mistake: Comparing franked and unfranked yields on the cash figures.

Why it bites you: The franking is prepaid tax worth up to 43 cents per dollar of cash at the top rate. Comparing cash to cash undervalues the franked dividend by up to a third.

Mistake: Building an income plan on the trailing yield.

Why it bites you: The trailing figure uses last year's dividends and inherits a declared cut up to a year late. The forward yield is the number the income plan should run on.

Mistake: Treating the yield as the total return.

Why it bites you: A 6 percent yield against a 10 percent annual price fall is a negative return with paperwork. The yield is the income leg; the price move is the other leg, and only the two together are the return.

Ivy's take

I spent an evening running every holding in my portfolio through the dividend yield calculator - cash, grossed-up, trailing, forward - so you don't have to. The four numbers tell four different stories, and the one the income marketing quotes is always the flattering one. The grossed-up forward yield is the honest number, and it is the one I pay attention to at 2 AM.

Brent bought the 9 percent and called it income. It was a commodity peak wearing a dividend costume, and the cut arrived on schedule. Check the forward figure, gross up the franking, and treat a yield well above the index's as a question rather than an answer. The denominator is doing the talking; make it say something true.

Related jargon, defined

Cash yield: The annual dividend divided by the share price, before franking.
Grossed-up yield: The yield including franking credits - the number the ATO taxes.
Trailing yield: Last twelve months of dividends against the current price.
Forward yield: The latest declared dividend annualised against the current price.
Franking credits: Credits for the 30 percent company tax already paid on the dividend.
Total return: The dividend income plus the price move - the full picture.

Frequently asked questions

What is a good dividend yield in Australia?+

The ASX 200 yields roughly 3.5 to 4 percent fully franked, and the big banks yield roughly 4 to 6 percent. A yield far above the index is usually a falling price or a pending cut rather than a generous board.

Is the dividend yield the same as the return?+

No. The yield is the income leg only, and the total return includes the price move. A 6 percent yield against a falling price is still a loss.

What does fully franked do to the yield?+

It lifts the grossed-up yield above the cash yield, because the credits are prepaid company tax. A 5.5 percent fully franked cash yield is roughly 7.86 percent grossed-up.

Should I use the trailing or forward yield?+

The forward yield - the latest declared dividend annualised - because it responds to a declared cut immediately. The trailing figure inherits the cut up to a year late.

Why do yields rise when prices fall?+

Because the yield is a ratio: the dividend is fixed and the price is the denominator. The rising yield often reflects the market pricing a dividend cut, not extra generosity.

Disclaimer: This information is general in nature and does not constitute financial or legal advice. Always consult a qualified professional for your specific situation.

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