Chupongrid desk · Harrow
Two yields, and a third that is about you
Trailing yield uses dividends already declared or paid over the last year, divided by today's price. It is the most checkable figure, and it is also the one a special dividend corrupts. If a company paid an ordinary 40p and a special 40p, a trailing yield built on 80p describes a year that included a one-off.
Forward yield uses a dividend that has not been paid yet: company guidance, or an analyst's guess. It can be the better description of the board's current policy, and it can also be wrong the day the policy changes. If a page does not say which yield it is showing, assume you do not know.
Yield on cost divides the dividend by your purchase price. Keep it for your own records. Do not use it to decide whether the shares are cheap.
Cover and the payout ratio
Dividend cover is earnings per share divided by the dividend per share. A cover of 2 means earnings were twice the dividend. The payout ratio is the same idea flipped: dividend divided by earnings. Cover of 2 is a payout ratio of 50%.
For an ordinary trading company, cover that stays below 1 means the dividend is larger than the earnings. That can happen for a year because earnings dipped, and it can be paid from cash or from debt. It cannot be a permanent description of a healthy ordinary dividend. Free cash flow is often a stricter test than accounting earnings, because earnings can include items that never became cash.
Do not export that rule of thumb to every vehicle. UK REITs are required to distribute the vast bulk of their tax-exempt rental profit, so cover near 1 can be the design, not a warning. Investment trusts can pay from revenue reserves, so a single year of cover below 1 does not mean the same thing as it does for a retailer. Read the vehicle first. The income-shares guide sets out the differences.
A short list of ways the headline lies
- The price has already fallen, so the yield is high because something else went wrong.
- A special dividend from a disposal is still inside the trailing twelve months.
- Earnings that covered the dividend were themselves one-off.
- Debt has been rising so the dividend could be held flat.
- The company is offering scrip because it would rather not pay cash, and the "yield" assumes you wanted shares.
- The distribution includes a return of capital, so part of the payment is your own money coming back.
- The figure is a PID yield being compared with a dividend yield, as if the tax were the same. It is not.
Eight questions before the yield becomes a budget
- Is this ordinary, special, or a mix?
- Is the yield trailing or forward, and who estimated the forward number?
- What is cover on earnings, and what is it on free cash flow?
- Is net debt rising or falling while the dividend is held?
- What currency is the dividend declared in?
- Which account holds it, and is any of the payment a PID?
- When is the next ex-dividend date, and when does the cash actually arrive?
- If this one holding cut tomorrow, what happens to the household bill it was meant to pay?
A calculator for one holding
Type a single dividend, a price and a share count. The result stays in this browser. Nothing is sent to Chupongrid. The tax line uses 2026/27 rates and assumes the whole taxable dividend sits in one band and that you have no other dividends. Untick that assumption in your own head before you treat the tax figure as a filing.