Calculate the yield of preferred stock from its annual dividend and market price, and solve for the price or dividend you need.
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Preferred Stock Yield Formula
Yield (%) = (D / P) * 100
Where:
D is the annual dividend paid per preferred share in dollars.
P is the current market price per preferred share in dollars.
The yield tells you the annual return you earn from the dividend at the price you pay. Because preferred stock is normally treated as perpetual, this is a current dividend yield rather than a yield to maturity.
When you only know the par value and the stated dividend rate, find the annual dividend first:
D = V * r
Where V is the par value per share and r is the annual dividend rate written as a decimal. For quarterly dividends, multiply the quarterly payment by four to get D.
Sample Yields by Price and Dividend
The table below shows the yield for several combinations of annual dividend and market price so you can see how a rising price lowers the yield.
| Annual Dividend (D) | Market Price (P) | Yield |
|---|---|---|
| $5.00 | $100.00 | 5.00% |
| $5.00 | $90.00 | 5.56% |
| $5.00 | $110.00 | 4.55% |
| $1.50 | $24.00 | 6.25% |
| $6.00 | $95.00 | 6.32% |
Example Problems
Example 1. A preferred share pays an annual dividend of $4.50 and trades at $90. The yield is (4.50 / 90) * 100 = 5.00%.
Example 2. A $100 par preferred share has a 6% annual dividend rate, so D = 100 * 0.06 = $6.00. At a market price of $95, the yield is (6.00 / 95) * 100 = 6.32%.
FAQ
What is preferred stock yield?
It is the annual dividend per share divided by the current market price per share, shown as a percent. It measures the income return you get at the price you pay.
Does preferred stock have a yield to maturity?
Most preferred stock is perpetual and has no maturity date, so the relevant figure is the current dividend yield. Only callable or term preferred shares have a yield to call or yield to maturity, which depend on the call price and call date.
How is the yield different from the dividend rate?
The dividend rate is fixed against par value, while the yield is measured against the current market price. When the price moves away from par, the yield differs from the stated rate.