Use MarketBeat's free dividend calculator to learn how much income your dividend stock portfolio will generate over time. Incorporate key calculations, such as dividend yield, taxes, dividend growth, distribution frequency, dividend growth, and time horizon to accurately understand your dividend investment portfolio's future income power. Plus leverage other dividend tools from MarketBeat to identify the safest and highest-yield dividend stocks. Learn more about using the dividend calculator.
Investing in dividend paying stocks is an effective strategy for realizing many investment objectives. But with thousands of dividend stocks, ETFs, and mutual funds to choose from, only the most disciplined and organized investors can easily track their dividend growth over time.
For the rest of us, MarketBeat offers the MarketBeat dividend calculator. With just a little bit of information, this tool lets investors see how their dividends can grow over time. In this article, we’ll explain how to make the best use of this tool. But before we do that, we’ll go over some commonly used terms for investors who are new to dividend investing.
What are the Benefits of Owning Dividend Stocks?
For investors who rely on their dividends to meet regular expenses, the money invested in dividend stocks leads to a steady dividend payment. And investors who are reinvesting dividends can build wealth slowly due to the benefit of compounding.
Those are the tangible benefits. There are some intangible benefits as well. First, investing in dividend stocks offers reduced risk for investors. That’s because many of the companies that pay dividends are in a mature phase of their business cycle. This means they have the flexibility to use their profits to reward shareholders with a dividend rather than using it to fuel their future growth.
That brings to mind another benefit of owning dividend stocks. These are generally well-run companies with strong balance sheets. In many cases, these are companies that are in defensive sectors. Consider stocks like Coca-Cola (NYSE: KO) and McDonald’s (NYSE: MCD). These companies will continue to generate revenue no matter what is happening in the broader economy.
Also, the best dividend stocks have a history of increasing their dividend on an annual basis. The best of the best are known as Dividend Aristocrats and Dividend Kings. These companies have increased their dividend for at least 25 and 50 consecutive years respectively.
Why is a Stock's Dividend Yield Important and How is it Calculated?
A company’s dividend yield is a measure of how much money per share a company pays out as a dividend. The yield is expressed as a percentage. The formula for calculating dividend yield is:
Annual dividend per share/price per share
For example, a company with a share price of $100 that pays a $5 dividend per share has a dividend yield of 5%.
5/100 = .05 (5%)
When you provide those two variables, the dividend screener calculates dividend yield for you. However, you need to know how to interpret what a company’s dividend yield means. For that, it’s important to know how a company’s dividend measures up to other stocks in its sector.
For example, the average dividend yield of a real estate investment trust (REIT) as of August 2022 is 3%. Simon Property Group (NYSE: SPG) has a dividend yield of 6.26%. While that may not be the only reason to buy SPG stock, it may be a tiebreaker if deciding between two REIT stocks to buy.
However, a strong dividend yield in one sector may be weak in another. And since a rising or falling share price affects dividend yield, it shouldn’t be the only way of measuring a stock’s fitness as a good dividend stock.
Dividend Payout Ratio May be a Better Metric for Some Investors
As we’ve pointed out, many investors own dividend stocks for the income they provide. With than in mind, a better metric for those investors is the payout ratio.
A dividend payout (or annual dividend per share) is the amount an investor will receive in the form of a dividend on a per share basis. It’s the bottom line for income-oriented investors. How much money will they receive on a monthly, quarterly, or annual basis.
In our example above, if a company pays out $5 per share on an annual basis, an investor who owns 100 shares of the stock will receive $500 a year in dividend payments.
The Dividend Growth Rate Ties it All Together
The best dividend stocks are ones that have a long history of not only paying a dividend but growing that dividend. Like dividend yield, this is a statistic that is best to be compared against other stocks in the same sector or with similar attributes (i.e. market cap).
That’s why many financial websites, such as MarketBeat, calculate a company’s three-year dividend growth rate. Sometimes a company grows its dividend strongly in one year, but that turns out to be unsustainable. In these cases, a company may be forced to cut its dividend. Since dividend investors generally rely on the company’s dividend for income, they may sell a stock if the dividend is cut.
With that said, there are times when companies have no choice but to cut or suspend its dividend. A good example of this occurred during the Covid-19 pandemic when companies were faced with a dramatic, and unavoidable, loss of revenue.
How to Use the MarketBeat Dividend Calculator
This calculator is a straightforward tool that only requires investors to provide some basic information such as current stock price, anticipated stock price growth rate, anticipated dividend growth rate, and if you’re planning on executing a dividend reinvestment strategy. Most of this information is readily available on MarketBeat.com.
Step 1: Select Your Investment Type
You can calculate dividend growth for individual stocks you own, or you can calculate a stock’s dividend yield as a percentage of the value of your entire money invested. While this includes stocks that don’t pay dividends, calculating dividends this way gives you a percentage that tells you how well the dividend income of a given stock contributes to the value of your entire portfolio.
Step 2: Provide Information about the Particular Stock
Is it taxable? Select Yes or No. What is the distribution frequency? Many stocks pay dividends quarterly. The tool also lets you select annual, semi-annual or monthly options (Note: The dividend calculator does not factor in special dividends since by their very nature they are irregular.).
The other field lets you indicate if you plan on reinvesting the dividends as part of a dividend reinvestment plan (DRIP). Not all stocks do, but a DRIP is one of the easiest ways to enjoy the benefits of compounding. This is another benefit of this tool. It easily allows investors to see the effect of reinvesting dividends without needing to use a dividend reinvestment formula.
Step 3: Provide Information about Your Investment Intentions
This includes three fields. First what is your starting balance? Next, how much, if anything, do you plan on contributing to the stock on an annual basis? This does not include reinvested dividends. The third field gives you the opportunity to select a length of time to measure. For example, if you are planning on retiring in 10 years, you may only want to see where the stock price (or your portfolio) will be in 10 years. If you plan on this stock being a “forever” stock, you may choose a longer time horizon.
Step 4: Provide Information about the Stock’s Dividend
Here’s where investors may have to make some assumptions. The last two fields, however, are essential to the accuracy of the calculator. The first is the average annual dividend yield for a particular stock. Companies usually list this information on its web site under “Investor Relations” or a similar title.
The last field is “Expected Increase % (per year)”. MarketBeat.com gives investors a company’s recent dividend history. For example, investors can see that a company has increased its dividend by 0.25% every year for the past five years. Is that a guarantee they will do that again? No, but it does offer a reasonable assumption. Once a company starts increasing dividends, they will usually make continuing that pattern a priority. If they don’t, it could be an indication that the company is having financial problems.
The Final Word about Using the Dividend Reinvestment Calculator
It may go without saying, but the results of the calculator are only as good as the data that investors provide. Therefore you should be as accurate as possible with the information you provide. It’s okay to experiment with different scenarios. However, if you’re not going to be adding money to the account, you need to base your calculations on that reality. If you aren’t planning on reinvesting the dividend, don’t indicate that you are. If the dividend has not changed in several years, don’t assume the company will raise it in the future.
With that said, things change. Assumptions you make may change which means you may have to revisit the calculator to see whether an investment is still serving you well. There are many great dividend paying stocks that investors can buy and hold for years. But dividend stocks can fall out of favor. Above all else, that’s the reason why a tool like this exists to make it easy for you to get the information you need from a trusted source like MarketBeat.com.