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.
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.
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 diagnostic to find which topics need work.
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.
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