What is dividend yield?

The formula and a worked example

Dividend Yield = Annual Dividends Per Share ÷ Share Price × 100. Say a company pays $2 a year in dividends per share, and the share trades at $40. That's $2 ÷ $40 × 100, a 5% yield. That figure is the raw cash yield, before tax, franking or how sustainable the dividend actually is.

Trailing vs forward yield

Trailing yield is based on dividends that have already been paid over the past 12 months, a historical fact. Most broker platforms, like CommSec, Stake and Superhero, show this figure by default. Forward, or estimated, yield is based on analyst forecasts for the next 12 months. It's more useful for planning ahead, but it's still an estimate that can turn out wrong. Always check which version a platform is showing you, the two can differ meaningfully around reporting season.

Grossed-up dividend yield: the Australian twist

Franking credits are tax credits attached to dividends paid out of profits the company has already paid 30% corporate tax on. The grossed-up yield accounts for that credit: for a fully franked dividend, divide the cash yield by 0.70. A 4% cash yield becomes 4% ÷ 0.70, a 5.71% grossed-up yield. That extra 1.71 percentage points is the value of the franking credit itself.

For a retiree in pension phase paying no tax, franking credits can be refunded in full, which makes the grossed-up yield the more accurate picture of what they're actually receiving. Never compare a franked Australian yield directly against an international dividend or a term deposit rate without grossing it up first, otherwise you're comparing two different things.

Typical yield ranges in Australia

The ASX 200's trailing yield has sat roughly between 3.3% and 3.7% through 2024-25, below its longer-run average of around 4.0% to 4.5%. Among the big four banks, estimates vary widely: CBA has traded around 2.6% to 3.9% (lower, reflecting its premium valuation), while NAB, ANZ and Westpac have ranged from roughly 4.2% up to nearly 6%. A high-yield ETF like VHY (Vanguard Australian Shares High Yield ETF), which deliberately targets high-yield stocks rather than tracking the broad market, has sat around 7.6% to 8.3%. These numbers move constantly, so treat them as context rather than a current fact to rely on.

The yield trap

Yield rises mechanically when a share price falls, even without any change to the dividend itself. A share paying $1 a year at a $20 price yields 5%. If the price drops to $10, the yield reads as 10%, with no increase in the actual payment, and the market is usually telling you something is wrong. A yield that's unusually high compared to its sector peers can be an early signal of an expected dividend cut.

Always check the payout ratio, dividends paid as a percentage of earnings. A company paying out more than it earns can't sustain that dividend indefinitely, and when the cut eventually comes, the share price often falls further too.

Three common misconceptions

• A higher yield isn't always a better investment. It can simply reflect a falling share price or an unsustainable payout, the yield trap described above.
• Yield doesn't tell you what you'll earn going forward. It's backward-looking or, at best, an estimate. Future dividends are never guaranteed.
• Comparing Australian and international yields isn't apples to apples. A 4% fully franked Australian yield is worth more than a 4% unfranked international dividend to most Australian tax residents. You need the grossed-up yield to make a fair comparison.