Selurio · Blog
Dividend Yield — How to Calculate It Correctly
You are looking at two stocks: one pays a €2 dividend a year, the other €5. Is the second one more generous? You cannot say until you know their prices. A €2 dividend on a €40 price is a better yield than €5 on a €200 price. The number that makes them comparable is the dividend yield.
This article explains how it is calculated, why tax matters, and why a paradoxically high yield is sometimes a warning rather than a reward.
The formula
The dividend yield is the annual dividend as a percentage of the share price:
Gross yield = annual dividend per share / share price × 100%
Example: a stock costs €50 and pays a €2 dividend a year. The yield is 2 / 50 = 4%. For every €100 invested you receive €4 of dividend a year — before tax.
Gross vs. net: tax takes a bite
Dividends are taxed. In Bulgaria the rate for individuals is around 5% (indicative — see dividend tax in Bulgaria). So what actually reaches your account is the net yield:
Net yield = gross yield × (1 − tax rate)
At a 4% gross yield and 5% tax, the net is 4% × 0.95 = 3.8%. A small difference at first glance, but over decades and a large portfolio it adds up noticeably.
See your own case in the dividend yield calculator — enter the dividend and price of a specific stock and toggle the tax to see the net result.
Why a high yield can be a trap
The logic suggests "higher yield = better." But look at the formula again: the yield also rises when the price falls. If a €50 stock with a €2 dividend (a 4% yield) drops to €25 while the dividend stays, the yield jumps to 8% — but only because the market has punished the company.
| Scenario | Price | Dividend | Yield |
|---|---|---|---|
| Starting point | €50 | €2 | 4% |
| Price halves | €25 | €2 | 8% |
| Price doubles | €100 | €2 | 2% |
That is why an unusually high yield (say, above 8–10%) is a reason to check, not to celebrate: it often signals that the market expects the dividend to be cut or that the company is in trouble. The sustainability of a dividend matters more than its momentary yield.
Yield today vs. income tomorrow
The dividend yield is a snapshot. It does not account for the fact that good companies increase their dividend over the years, nor that reinvested dividends themselves begin to earn dividends. This snowball effect is the engine of long-term dividend income — explored in reinvesting your dividends.
If your goal is a specific monthly income from dividends, the yield is only one part of the calculation — the other is how much capital you need. For that, see passive income from dividends and the passive-income calculator.
What this does NOT mean
- Yield is not the whole return. Total return is the dividend plus the change in price. A stock with a low yield but a rising price can be the better investment.
- This is not a recommendation. Selurio explains the metric — it does not advise which stock to buy.
- The tax framework is indicative. Check the current rules with the National Revenue Agency (NRA) (opens in new tab).
Continue reading
- Passive income from dividends — how much capital for a target monthly income.
- Reinvesting your dividends — how the snowball grows.
- Dividend tax in Bulgaria — the 5% regime in brief.
- Investing for beginners — where dividends fit in.
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