Dividend yield
Learn what dividend yield is, how to calculate it, and what a good yield looks like in New Zealand.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Dividend yield shows the dividends a company pays as a percentage of its share price, so you can compare income across shares.
- You work it out by dividing the annual dividend per share by the current share price, then multiplying by 100.
- A high yield isn't always good news, because a falling share price can inflate the figure into a yield trap.
- In New Zealand, dividends often carry imputation credits and may have resident withholding tax deducted, so check Inland Revenue for your situation.
Dividend yield (definition)
Dividend yield shows the dividends paid as a percentage of the share price. It's a common measure of return for shareholders.
The figure helps you spot which companies pay more in dividends relative to what their shares cost. That matters most if you want regular cash income from the shares you hold.
To keep an eye on your own earnings and equity, you can run financial reports in Xero.
How to calculate dividend yield
You calculate dividend yield with a simple formula that turns the dividend into a percentage of the share price.
(Annual dividend per share / Current price per share) x 100 = Dividend yield %
There are 2 common versions. Trailing yield uses dividends the company has already paid over the past 12 months, while forward yield uses the dividends it's expected to pay over the year ahead.
Example of dividend yield calculation
Comparing 2 companies shows how the share price shapes the yield, even when the dividend is the same.
- Company A pays a $2 annual dividend on a $40 share: ($2 / $40) x 100 = 5%
- Company B pays a $2 annual dividend on an $80 share: ($2 / $80) x 100 = 2.5%
Both companies pay the same $2, but Company A has the higher yield because its share price is lower. A lower share price lifts the yield.
Understanding dividend yield
Dividend yield tells you about the income a share might generate, but it doesn't show the full picture of a company's financial health.
A stable or rising yield can signal that a company feels confident about its future cash flow. A rising yield can also reflect a falling share price, which sometimes points to a business in trouble.
Some companies borrow to keep dividends high, or pay them out instead of reinvesting in the business. Both choices can weaken future performance.
What's a good dividend yield?
There's no single good number, because yields vary a lot by industry and company. Mature, steady businesses tend to have higher yields, while fast-growing companies often have lower yields as they reinvest profits to grow.
A very high yield can be a warning sign rather than a bonus. If it's driven by a sliding share price, it may be a yield trap, so weigh it alongside other profitability ratios.
Dividend yield vs dividend payout ratio
These 2 measures sound similar but answer different questions about a company's dividends.
- Dividend yield: the dividend measured against the share price, shown as a percentage
- Dividend payout ratio: the proportion of profit a company pays out to shareholders as dividends
Yield tells you the income relative to what you'd pay for the share. Payout ratio tells you how much of its earnings the company hands back rather than keeps.
How dividends are taxed in New Zealand
Dividends are treated as income, and the tax treatment in New Zealand has a couple of features worth knowing. This is general information, not tax advice.
Dividends from New Zealand resident companies commonly carry imputation credits, which reflect company tax the business has already paid. Resident withholding tax (RWT) may also be deducted so the total tax on the dividend reaches the recipient's own rate.
Because everyone's situation differs, check Inland Revenue or talk to a tax adviser about how the rules apply to you.
Limitations of dividend yield
Dividend yield is useful, but it leaves out a lot, so treat it as one measure among many.
- It doesn't capture capital gains, which are often a major source of an investor's return
- It can be inflated by a falling share price rather than by generous dividends
- It can be propped up by a company relying on debt to sustain payouts
Weigh yield alongside a company's performance, profitability, liabilities, industry position, and growth prospects. Reading a company's financial statements gives you that fuller view.
Track your business's financial performance with Xero
Clear reporting helps you understand your earnings, equity, and the numbers behind any dividend decision. Xero brings your finances together in one place so you can see how your business is tracking. Sign up for Xero and get one month free.
FAQs on dividend yield
Here are answers to frequently asked questions about dividend yield.
What does a high dividend yield mean?
A high yield can mean a company pays generous dividends relative to its share price. It can also be a yield trap, where a falling share price has inflated the figure.
Is a dividend yield paid monthly?
Dividend yield is a percentage measure, not a payment, so it isn't paid on any schedule. The dividends behind it are usually paid quarterly or twice a year, though this varies by company.
Do all companies pay dividends?
No, many companies don't pay dividends. Growth companies often reinvest profits into the business instead of paying them out.
Where can I find a company's dividend yield?
Listed companies publish dividend details in their investor updates and annual reports. Stock exchange listings and financial data websites also show the current yield.
How are dividends taxed in New Zealand?
Dividends from New Zealand resident companies often carry imputation credits, and resident withholding tax may be deducted. Check Inland Revenue or a tax adviser for your circumstances.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.