Gross and after-tax dividend yield on a stock holding.
After-tax annual income
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Gross yield
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After-tax yield
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Yield is income measured against price
Dividend yield answers a question every income investor cares about: for each peso I have tied up in this stock, how much cash does it pay me back in a year? It is the annual dividend per share divided by the current share price, expressed as a percentage. A stock paying PHP 6 a year on a PHP 100 price yields 6 percent. The figure is useful precisely because it is comparable. You can line up a dividend-paying stock against a time deposit or a bond and see which throws off more income per peso invested, before you even think about price growth.
This calculator adds the part casual yield quotes leave out: tax. Dividends from local shares carry a final withholding tax, applied here at 10 percent, so the income you actually keep is lower than the headline yield suggests. The tool reports both the gross yield and the after-tax yield so you compare on the right basis. The 10 percent is the rate this calculator applies; confirm the current rate with the Bureau of Internal Revenue, since the rate on dividend income is set by statute.
From 6 percent gross to 5.40 percent kept
Work the defaults. You hold 1,000 shares at PHP 100 each, and the stock pays PHP 6 per share a year. Gross income is 1,000 times PHP 6, which is PHP 6,000. Gross yield is PHP 6 divided by PHP 100, or 6.00 percent. Apply the 10 percent final tax and you keep 90 percent: after-tax income is PHP 5,400 and the after-tax yield is 5.40 percent. The tax has shaved sixty basis points off the yield, which is the drag worth remembering when a headline number tempts you.
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The two bars below set the gross yield against the after-tax yield so the 10 percent haircut is visible at a glance.
Reading a high yield with a sceptical eye
A fat dividend yield is not automatically a bargain. Because yield is dividend divided by price, a yield can spike simply because the share price has fallen, which may be the market pricing in trouble at the company. A yield that looks too generous next to its peers deserves a look at whether the dividend is sustainable from earnings or is being propped up. Equally, this tool uses the current price, so the yield it shows is the yield a new buyer gets today. Your personal yield on cost, based on what you originally paid, can be quite different and is usually higher if the price has risen since you bought.
A practical point for planning income: the after-tax figure is what should feed your budget. If you are relying on dividends to cover living costs, model the PHP 5,400 you keep, not the PHP 6,000 declared. And remember a company can cut or suspend its dividend, so a yield is an estimate of future income, not a guarantee like a fixed deposit rate.
Is dividend yield the same as total return?
No. Yield captures only the cash dividend income relative to price. Your total return also includes any change in the share price, which can be positive or negative and is often larger than the dividend itself. A stock can have a healthy yield while its price falls, leaving you worse off overall. Use yield to compare income, but judge an investment on income and price movement together.
How is the after-tax yield figure derived here?
The tool takes your gross yield and multiplies it by 90 percent, which reflects keeping the dividend after a 10 percent final withholding tax. So a 6.00 percent gross yield becomes 5.40 percent. The same 90 percent factor is applied to your annual income to show the cash you actually keep. Because the calculation depends on that 10 percent rate, confirm the rate currently in force with the BIR, since a change in the rate would move the after-tax figure.