What a dividend stock really pays you
A company that pays $2 a share sounds generous until you notice the share costs $200. The dividend yield puts the payout in proportion to the price, so you can compare stocks, funds and savings rates. This calculator also shows what your own shares pay after tax and how much capital a target monthly income would take.
The formulas
- Dividend yield = annual dividend per share ÷ share price × 100
- Annual income = dividend per share × number of shares
- After-tax income = annual income × (1 − tax rate)
- Shares needed = target monthly income × 12 ÷ after-tax dividend per share
Most US companies pay quarterly, so the annual dividend is usually the latest quarterly payout × 4. Use the forward dividend, not a one-off special dividend.
Worked example: $50 stock paying $2
- Yield: 2 ÷ 50 = 4.00%.
- With 200 shares ($10,000 invested), you receive $400 a year before tax.
- As qualified dividends taxed at 15%, you keep $340, or $85 per quarterly payment.
- For $500 a month after tax, you need 6,000 ÷ (2 × 0.85) ≈ 3,530 shares, about $176,500 at today’s price.
How US dividends are taxed
- Qualified dividends (most US companies and many foreign ones, held more than 60 days around the ex-dividend date) get long-term capital gains rates: 0%, 15% or 20% depending on taxable income.
- The Net Investment Income Tax adds 3.8% for higher incomes (above $200,000 single or $250,000 married filing jointly).
- Ordinary dividends, including most REIT and money market fund payouts, are taxed at your regular income tax rate.
- Inside a 401(k), traditional IRA or Roth IRA, dividends are not taxed when paid.
State income tax may come on top in most states.
Income by dividend level
| Dividend per share | Yield at $50 | After-tax income (200 shares) | Capital for $500/month |
|---|---|---|---|
| $0.50 | 1.00% | $85 | $705,900 |
| $1.00 | 2.00% | $170 | $352,950 |
| $2.00 | 4.00% | $340 | $176,500 |
| $3.00 | 6.00% | $510 | $117,650 |
| $4.00 | 8.00% | $680 | $88,250 |
Why a very high yield is a warning sign
Yield rises when the share price falls. A stock yielding 8–10% often reflects a market that expects the dividend to be cut. Before buying for yield, check the payout ratio (dividends ÷ earnings, or ÷ free cash flow): above 80–90% for an ordinary company leaves little room for a bad year. A long record of steady increases is usually a better sign than a high current yield.
Yield is only half of the return
Total return = dividend yield + share price growth. A 1.5% yield on a fast-growing company can beat a 6% yield on a shrinking one. Dividend funds and ETFs spread the risk across dozens or hundreds of companies, which is a sensible way to build an income stream without betting on a single payer.