What Pays Dividends

• The most common investments that pay dividends are common stock, preferred stock, convertible stock and mutual funds. Dividends are usually paid in cash but are sometimes paid in additional stock.
  
  

Calculating the Rate

• The dividend rate is calculated by multiplying the amount of the dividend times the number of dividends per year divided by the share price times 100. For example, stock XYZ pays a 25-cent dividend quarterly and has a share price of $10. The dividend rate is 0.25 times 4 divided by 10 times 100 equals 10 percent.
  
  

Time Frame

• Stock and mutual fund share values change constantly. Your calculated dividend rate is true only for the time and share price you select. If you own shares, the rate you are earning is based on your purchase price, not the current market price.
  
  

A Twist

• Mutual funds that hold interest-paying securities, such as bonds, earn interest but distribute the interest to the mutual fund shareholders as dividends.
  
  

Be Aware

• Some stocks and mutual funds pay the same dividend period after period. These shares make the calculation outlined above an accurate representation of the rate. Other securities have dividends that change significantly from period to period. Check the historical dividend data of the investment to determine how consistent it is with the distributions.
  
  

Considerations

• The yield or rate quoted on various Internet financial websites may be significantly in error. This is usually due to bad data or basing the calculation on a distribution not typical for the shares. Learn to do your own calculation as explained here.