Dividend yield

Published Wednesday 30 September 2026

Table of contents

• What is dividend yield?
• How to calculate dividend yield
• Example of dividend yield calculation
• Trailing vs forward dividend yield
• Understanding dividend yield
• What’s a good dividend yield?
• Dividend yield vs payout ratio
• Limitations of dividend yield
• Dividend yield and tax in Malaysia
• Track your business earnings with Xero
• FAQs on dividend yield
• Related terms
• Learn more about dividend yield

Key takeaways

• Dividend yield is a company’s annual dividend per share shown as a percentage of its current share price
• A falling share price pushes the yield up, so check why a yield is high before you rely on it
• Compare yields within the same sector and against lower-risk options such as fixed deposits
• Malaysian dividends are generally tax-exempt, but individuals earning over RM100,000 a year in dividends pay 2% tax

What is dividend yield?

Dividend yield is the annual dividend a company pays per share, shown as a percentage of its current share price. It tells you how much cash income a share gives you for every ringgit you invest.

Think of it like the interest rate on a savings account: it shows the cash return on the money you put in. Investors who want regular income use it to find companies that pay more relative to their share price.

Dividend yield and profit are linked, but they measure different things. Profit is everything a business earns, and the business may keep some or all of it. Dividend yield looks only at the part that’s paid out to shareholders.

How to calculate dividend yield

You need two numbers to work out dividend yield: the annual dividend per share and the current share price. Follow these steps.

1. Add up the dividends the company paid per share over the year
2. Find the current market price of one share
3. Divide the annual dividend per share by the share price
4. Multiply the result by 100 to get a percentage

Here’s the dividend yield formula: (Annual dividend per share ÷ Current price per share) × 100 = Dividend yield %

Example of dividend yield calculation

Say a company pays an annual dividend of RM2 per share and its shares trade at RM40. The calculation is (RM2 ÷ RM40) × 100 = 5%, so the dividend yield is 5%.

Now say the share price falls to RM20 while the dividend stays at RM2. The yield becomes (RM2 ÷ RM20) × 100 = 10%, even though shareholders receive the same cash each year.

Trailing vs forward dividend yield

You’ll see dividend yield quoted in two ways. Both divide by the current share price, but they use different dividend figures.

Trailing dividend yield uses the dividends a company actually paid over the past 12 months. It’s based on real payments, so it may lag behind a recent dividend rise or cut.

Forward dividend yield projects the next year’s dividends and divides them by the current share price. A common method, explained by the Corporate Finance Institute (CFI), multiplies the most recent payment by the number of payments a year. For example, a company that pays RM0.50 every quarter has a forward annual dividend of RM2.

Understanding dividend yield

Dividend yield shows the income a share might give you, but it covers only part of a company’s financial health. Stable or rising yields can mean a company is confident in its stability and future cash flow.

A high yield can also be a warning sign. In the RM20 example, the yield doubled because the share price halved, and a drop like that may mean the business is in decline.

Some companies borrow money to keep dividends high, or pay dividends instead of reinvesting in the business. Either choice can weaken the company’s future performance.

What’s a good dividend yield?

There’s no single number that counts as a good dividend yield. Yields vary between industries and companies, so compare a company with others in the same sector.

Mature, stable companies with predictable cash flows often have higher yields. Fast-growing companies, such as those in technology, tend to have lower yields because they reinvest profits to grow market share.

It also helps to compare a share’s yield with lower-risk options such as fixed deposits or Malaysian Government Securities. If the share’s yield doesn’t beat these, the extra risk of holding it may not be worth it. A licensed financial adviser can help you set target yields for your portfolio.

Dividend yield vs payout ratio

Dividend yield compares dividends with the share price, while the payout ratio compares dividends with profit. CFI’s payout ratio guide defines it as dividends ÷ net income, or dividends per share ÷ earnings per share.

NYU Stern’s dividend fundamentals dataset (data as of January 2026) puts the payout ratio for US listed companies as a whole at about 35%. A company that pays out close to all of its profit, or more, may find that dividend hard to sustain.

To judge whether a dividend can last, look at free cash flow, the cash left after running costs and investment that funds dividends. Profit the company keeps instead of paying out becomes retained earnings, which it can reinvest for growth.

Limitations of dividend yield

Dividend yield works best as one measure in a wider review of a company’s health. Keep these limits in mind when you use it.

• It leaves out capital gains from rising share prices, which are often a major part of your total return on investment
• It can rise for the wrong reasons, such as a falling share price or dividends funded by debt
• It measures income only, so pair it with profitability ratios to see how well the company turns sales into profit
• It’s one number, so also weigh the company’s performance, liabilities, industry position and growth prospects

Dividend yield and tax in Malaysia

Malaysia uses a single-tier tax system, so dividends are generally exempt from tax in shareholders’ hands. From year of assessment 2025, there’s an exception for individuals with large dividend incomes.

According to PwC Worldwide Tax Summaries, individuals with annual dividend income above RM100,000 from resident companies pay 2% tax on the chargeable dividend income. This covers resident and non-resident individuals, including shares held through nominees.

If the tax applies to you, your after-tax yield will be lower than the headline figure. Check your position with a tax adviser before you invest.

Track your business earnings with Xero

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FAQs on dividend yield

Here are quick answers to common questions about dividend yield.

What does a 5% dividend yield mean?

A 5% yield means you’d get RM5 a year in dividends for every RM100 you invest at today’s share price. If the dividend holds steady, you keep receiving that income whatever the share price does afterwards.

Can a company cut its dividend?

Yes. Dividends aren’t guaranteed, so a company can reduce or suspend them if its profits or cash flow fall.

How often do companies pay dividends?

It depends on the company: some pay once a year, while others pay twice a year or every quarter. To work out the yield, add up every payment made over the year.

Does the dividend yield change daily?

Yes, it moves whenever the share price moves, even when the dividend stays the same. That’s why the yield quoted today may differ from the yield you got when you bought.

Related terms

• Dividend
• Earnings per share
• Equity
• Net profit
• Liabilities

Learn more about dividend yield

• How to measure profitability
• Owner’s equity
• Net worth in business
• Angel investment