Dividend Yield: The Formula CISI Tests (With Worked Examples)
How to calculate dividend yield for the CISI exam: the formula, three worked examples, and the distractors CISI uses to catch you. Simple once you have done a few.
How do you calculate dividend yield?
Dividend yield = (annual dividend per share ÷ share price) × 100. It expresses the annual dividend as a percentage of the current share price. For example, a share trading at 200p and paying an annual dividend of 8p yields (8 ÷ 200) × 100 = 4%. Keep the units consistent, pence over pence or pounds over pounds, and where a question gives an interim and a final dividend, add them together first.
- Formula
- Dividend yield = (annual dividend per share ÷ share price) × 100
- Worked example
- Share at 200p paying an 8p annual dividend: (8 ÷ 200) × 100 = 4%
- Mixed units example
- Share at £5.00 paying 20p: convert 20p to £0.20, then (0.20 ÷ 5.00) × 100 = 4%
- Interim plus final example
- Interim 3p plus final 9p is a 12p annual dividend. At a price of 150p: (12 ÷ 150) × 100 = 8%
- Most common mistake
- Mixing a price in pounds with a dividend in pence, which throws the answer out by a factor of a hundred
- Second most common mistake
- Using only the interim or only the final dividend. A distractor is waiting for exactly that
- Not the same as dividend cover
- Dividend cover is earnings per share over dividend per share, measuring how comfortably the company can afford the payout
- Price and yield
- For a fixed dividend, a higher share price means a lower yield and a lower price means a higher yield
Dividend yield is one of the cleanest marks on a CISI paper, as long as you have done a few. It comes up on the Introduction to Securities & Investment and the Securities paper, the formula never changes, and the only way the exam makes it tricky is with distractors that punish careless reading. Learn it once, drill three examples, and it is a mark you will never miss.
The formula
Dividend yield is the annual dividend as a percentage of the current share price.
Dividend yield = (annual dividend per share ÷ share price) × 100
That is the whole thing. It tells an investor what income, as a percentage, they get from dividends relative to what the share costs today. A higher yield means more income per pound invested, all else equal.
Test yourself on Intro to S&I (UK)
4 questions written to the current syllabus, in the format of the real paper. Pick an answer and the explanation appears. Nothing to sign up for.
Which of the following provides a technology-based service through which advisers and their clients buy, hold and view investments in one place?
Not quite. The answer is B.
A platform lets advisers and clients hold funds, shares and cash across different tax wrappers in a single account and view them together. A custodian is the runner-up because a platform relies on one, but the custodian is contracted behind the scenes for safekeeping and settlement and does not provide the dealing and reporting interface. A stockbroker executes orders and a third-party administrator performs back-office record keeping for fund managers.
What is recorded in the current account of the UK's balance of payments?
Not quite. The answer is B.
The current account records trade in goods and services, investment income such as interest and dividends received from abroad, and current transfers. Portfolio investment is the runner-up because the income it generates is a current account item, but the cross-border purchase of the securities themselves is a financial flow. Direct investment and movements in official reserves are recorded in the capital and financial account.
Which of the following gives exposure to commercial property and can be bought or sold on an exchange during the trading day?
Not quite. The answer is B.
Shares in a listed real estate investment trust trade on an exchange like any other share, so the holder gains commercial property exposure that can be dealt in seconds. Owning a building directly, or a let flat, means a sale measured in months. An open-ended property fund prices its units periodically and can restrict withdrawals, so it does not offer exchange dealing either.
Which of the following describes a UK shareholding recorded only in electronic form in CREST, with no paper certificate issued at any stage?
Not quite. The answer is D.
Dematerialisation removes the paper altogether, so the holding exists only as an electronic record. Immobilisation is the runner-up and is different, because certificates still exist but are locked away in a central depository. A certificated holding leaves the paper document with the investor, and bearer title passes by delivery of that document.
That is 4 of more than 10,800 questions in the PasskeyPrep bank. Chapter 1 of every exam is free, with the study notes and flashcards that go with it, and every answer is marked and explained the way these were.
Three worked examples
Example one. A share trades at 200p and pays an annual dividend of 8p. The yield is (8 ÷ 200) × 100 = 4%. Keep the units consistent: pence over pence, or pounds over pounds, never one of each.
Example two. A share trades at £5.00 and pays a total annual dividend of 20p. Convert so the units match: 20p is £0.20. The yield is (0.20 ÷ 5.00) × 100 = 4%. Most slips on this question come from mixing pounds and pence, not from the arithmetic.
Example three. A company pays two dividends in the year, an interim of 3p and a final of 9p. First add them: the annual dividend is 12p. If the share price is 150p, the yield is (12 ÷ 150) × 100 = 8%. When a question gives you an interim and a final, the exam is checking that you remember to add them before you divide.
The distractors CISI uses
The maths is easy, so the exam makes the marks with traps. Watch for these.
Mixed units. A price in pounds and a dividend in pence, as in example two. Convert before you divide, or you will be out by a factor of a hundred and there will be a wrong answer waiting for exactly that mistake.
Interim plus final. If both are given, add them. A distractor will offer the yield calculated from just one of the two.
Dividend yield versus dividend cover. Yield is dividend over price. Dividend cover is a different ratio entirely, earnings per share over dividend per share, and it measures how comfortably the company can afford the payout. The exam likes to see whether you can tell the two apart.
Price moves, yield moves the other way. For a fixed dividend, a higher share price means a lower yield, and a lower price means a higher yield. Conceptual questions test whether you understand that inverse relationship, not just the sum.
Why it is worth nailing
Calculation questions are the most reliable marks on the paper because the answer is either right or wrong, with no interpretation. The catch is that under time pressure you will not work out a formula you have only read once. The fix is to do enough that recognition is instant: see "dividend yield", and the formula is already in your head before you have finished reading the numbers.
Drill it for free. Try a set of free CISI practice questions, including the calculation types, or take the free Introduction diagnostic for a short snapshot of nine sampled Intro elements.
This is one of a handful of calculations the CISI tests. Bonds have their own, which we cover in flat yield versus redemption yield, and both come up in the Securities exam and the Introduction to Securities & Investment.
Frequently asked questions
What is the dividend yield formula?
Dividend yield = (annual dividend per share ÷ share price) × 100. It expresses the dividend income as a percentage of the current share price.
Do I use pence or pounds?
Either, as long as both the dividend and the price are in the same units. The most common mistake is mixing a price in pounds with a dividend in pence, which throws the answer out by a factor of a hundred.
What is the difference between dividend yield and dividend cover?
Dividend yield is dividend per share over share price, measuring income relative to price. Dividend cover is earnings per share over dividend per share, measuring how comfortably profits cover the payout. They are different ratios and the exam tests whether you know which is which.
Does a rising share price increase the dividend yield?
No. For a fixed dividend, a rising price lowers the yield and a falling price raises it. Yield and price move in opposite directions.