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Shares & dividends
Same idea, four ways to study it. Tap a style and find the one that clicks for you. 📺 Prefer to watch? Videos are on the lesson page.
📊 No compound interest here, shares run on percentages and ratios. The big one: Total return % = capital growth % + dividend yield %.

What it is

A share is a small piece of a company you can own. It pays you back two ways: a dividend (a regular cash payment per share) and capital growth (the share price going up). Add the two and you get your total return. The maths is light, mostly percentages and ratios, no compound interest.

The key measures

Total dividends
DPS × number of shares
Dividend yield
(DPS ÷ price) × 100
Capital growth %
(gain ÷ purchase price) × 100
Total return %
growth % + yield %

DPS = dividend per share. P/E ratio = share price ÷ earnings per share (how many dollars investors pay for $1 of earnings).

Worked example

Jordan buys 200 shares at $25 each. A year later they're worth $28, and the company paid a $1.00 dividend per share.

  1. Capital growth %: (28 − 25) ÷ 25 × 100 = 3/25 × 100 = 12%
  2. Dividend yield %: (1.00 ÷ 25) × 100 = 4% (on the purchase price)
  3. Total return %: 12 + 4 = 16%
  4. In dollars: gain 200 × $3 = $600, dividends 200 × $1 = $200, total profit = $800

Watch out

• Dividend yield can use the purchase price or the current price, use the one the question gives.
• Total return adds two percentages, don't add a percent to a dollar amount.
• "Per share" vs "total", multiply by the number of shares only when asked for the total.
• A high P/E isn't automatically good, it means investors expect growth (or it's pricey).

Total return, colour coded

Total return % = capital growth % + dividend yield %
capital growth = the price went up dividend yield = the cash it paid you

Two sources of return, stacked

12% 4% Jordan's share capital growth dividend yield = 16% total

The blue block is the price rise, the gold block is the cash dividend. Stack them and you have the total return: 16%.

The same thing in dollars

Capital gain
200 × $3 = $600
Dividends
200 × $1 = $200

Total profit $800 on $5,000 invested, which is the same 16%.

Warm up first

Don't read yet, just have a go in your head:

What are the two ways a share makes you money?
Dividends (regular cash payments) and capital growth (the price going up).
A $50 share pays a $2 dividend. What's the yield?
(2 ÷ 50) × 100 = 4%.
Growth is 10%, yield is 3%. What's the total return?
10 + 3 = 13%. You just add the two percentages.

Faded example: 200 shares at $25, now $28, $1 dividend

Rung 1 · watch one done fully

Growth %: (28 − 25) ÷ 25 × 100 = 12%. Yield %: (1 ÷ 25) × 100 = 4%. Total return = 12 + 4 = 16%.

Rung 2 · you fill the gaps

Growth %: (28 − 25) ÷ 25 × 100 = ?. Yield %: (1 ÷ 25) × 100 = ?. Total = ?

Check my gaps
12%, 4%, then 16%.
Rung 3 · all you

A share bought at $40 rises to $46 and pays a $2 dividend. Find the capital growth %, the dividend yield %, and the total return %. Check below.

Check my answer
Growth: (46 − 40) ÷ 40 × 100 = 15%. Yield: (2 ÷ 40) × 100 = 5%. Total return = 15 + 5 = 20%.

Exam-style stretch: P/E ratio

A company's shares trade at $40 and the earnings per share is $8. Find the P/E ratio, and say what it means.

Show the working
P/E = share price ÷ EPS = 40 ÷ 8 = 5. Investors are paying $5 for every $1 the company earns per share.

Say it back

In one sentence, out loud: what are the two parts of a share's total return? If you can say it, you've got it.

⚡ Shares & dividends, one look

Total dividendsDPS × number of shares
Dividend yield(DPS ÷ price) × 100
Capital growth %(gain ÷ purchase price) × 100
Total return %capital growth % + dividend yield %
P/E ratioshare price ÷ earnings per share
Example$25 → $28, $1 div → 12% + 4% = 16%, $800 profit
Trapadd percent to percent (not to dollars) · yield uses the price the question gives
On the Casio1.68÷42×100=