Calculate dividend yield
Express dividend per share relative to market price per share as a percentage.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Use the ratio formulae in the syllabus appendix exactly; Cambridge states these are the only formulae accepted. Use year-end balances where appropriate unless the question specifies averages, and round to the requested number of decimal places. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the AS Topic 1.6 ratio, financial-statement and stakeholder skills. These lessons add only the A Level ratios and interpretation required by Topic 3.5.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
DPS is $0.20 and share price is $5.00. What is yield?
What you will learn
- Calculate dividend yield using DPS and market price per share
- State the ratio and its equivalent percentage clearly
- Explain why yield can rise when price falls
Use the per-share values
Dividend yield = dividend per share ÷ market price per share. Both figures must refer to one share and use the same currency. The quotient is the yield ratio; for example, 0.04 is equivalent to 4%. Use the DPS calculated from interim dividend paid plus final dividend proposed.
A yield ratio of 0.04 means the annual dividend per share is 4% of the stated market price. It is a ratio using the current share price; it does not guarantee a future dividend or total investment return.
Check why the yield changed
Yield can rise because DPS increases, because the market price falls, or both. A price fall may reflect increased risk or weaker prospects, so a high yield is not automatically attractive.
Compare dividend cover, earnings, cash flow and market conditions. Separate the numerator and denominator movement before advising an investor.
Pause and explain
A share price falls while DPS is unchanged. What happens to yield mathematically?
Worked example
DPS is $0.10 and market price per share is $2.50. Calculate dividend yield.
Show the worked solution
- $0.10 ÷ $2.50 = 0.04.
- The ratio 0.04 is equivalent to 4%.
- The dividend per share equals 4% of the stated market price.
Answer Dividend yield is 0.04, equivalent to 4%.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
DPS is 15 cents and market price is $3.00. Calculate dividend yield.
Give me a hint
Convert both amounts to the same currency, then divide.
Compare my reasoning
- 15 cents = $0.15.
- $0.15 ÷ $3.00 = 0.05.
- The ratio 0.05 is equivalent to 5%.
Dividend yield is 0.05, equivalent to 5%.
Look for these in your work
- Use DPS, not EPS.
- Use consistent currency units.
- State the ratio and its equivalent percentage.
DPS remains $0.24. Market price falls from $6.00 to $4.80. Calculate the yield in both cases and the percentage-point change.
Give me a hint
Recalculate using each market price.
Compare my reasoning
- At $6.00: $0.24 ÷ $6.00 = 0.04, or 4%.
- At $4.80: $0.24 ÷ $4.80 = 0.05, or 5%.
- Yield rises by 1 percentage point, even though DPS is unchanged.
Yield rises from 0.04 (4%) to 0.05 (5%), a one-percentage-point increase caused by the lower share price.
Look for these in your work
- Calculate both ratios separately.
- Find the 1 percentage point change.
- Explain that DPS stayed constant while price fell.
A stock screen ranks a company first for dividend yield after a sharp share-price fall. What should an investor investigate before treating it as an opportunity?
Give me a hint
A falling price raises the ratio mechanically and may signal new risk.
Compare my reasoning
- Check whether the dividend is covered by profit and supported by cash flow.
- Investigate why the price fell, including outlook, debt and business risks.
- Assess whether the proposed dividend is sustainable and compare total return and alternatives.
A high yield may reflect a price decline and risk. Review coverage, cash flow, the reason for the fall and dividend sustainability before investing.
Look for these in your work
- Check profit cover and cash support.
- Investigate the reason for the price fall.
- Avoid treating yield alone as a recommendation.
Common mistakes
- Using EPS instead of DPS
- Confusing the decimal ratio with its percentage equivalent
- Calling yield the total return or a guaranteed future rate
What can you explain now?
Which dividend amount is used in dividend yield?
Compare with the explanation
Dividend per share
Dividend yield compares DPS with the market price per share.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Write the dividend-yield formula and explain one reason a high yield can be misleading.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.