Ask "is this a good dividend yield?" and you've already asked half a question. Yield on its own is a ratio — annual dividend ÷ price — and a ratio can move for two very different reasons: the dividend went up, or the price went down. A crashing price inflates the yield and makes a deteriorating company look like a bargain.
To read a dividend you need a second number: the payout ratio — dividend ÷ earnings. That's the sustainability check. The two together are what I built the dividend yield calculator and payout ratio calculator to show side by side. Both run off the same open-source library, dividend-math.
Two functions, two different questions
import { dividendYield, payoutRatio } from 'dividend-math';
// Yield: income relative to the price you pay
dividendYield({ annualDividendPerShare: 2.8, price: 80 }); // → 3.5 (%)
// Payout ratio: dividend relative to what the company actually earns
payoutRatio({ dividendPerShare: 2, earningsPerShare: 5 }); // → 40 (%)
dividendYield tells you the cash flow per dollar invested. payoutRatio tells you whether that cash flow is actually affordable. One without the other is a story half-told.
Reading the pair
- 7% yield at a 95% payout ratio — the dividend eats almost everything the company earns. No room to grow it, and any earnings dip puts the payout at risk. The high yield is often the market pricing in a cut.
- 3.5% yield at a 40% payout ratio — modest income, but the dividend is covered two-and-a-half times over. There's headroom to raise it (which is how a 3.5% payer becomes a 6% yield-on-cost over a decade), and the payout survives a bad year.
Same headline yield, opposite stories. The payout ratio is the lie detector. That's why a "good" yield for something you intend to hold is usually in the 3–5% range with a healthy payout ratio — boring, sustainable, and able to grow — rather than a double-digit yield propped up by an unsustainable payout or a collapsing share price.
Pure functions, tested edges
Both are pure functions: dividendYield returns NaN for a zero price (fail loud, don't return a pretty Infinity), payoutRatio returns NaN for zero earnings. Edge behavior is pinned by unit tests, and the same functions drive every calculator page on dividendpayoutcalculator.com — yield, payout, growth, DRIP, SCHD, and the QQQI dividend calculator. One implementation, no drift.
Run it
- Dividend yield calculator + payout ratio calculator — pair them, no sign-up.
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Library (npm):
npm install dividend-math - Source: github.com/a353551071/dividend-math (MIT)
Math/engineering post, not financial advice. Payout ratios differ by sector (REITs, MLPs run high legitimately); model scenarios, don't pick tickers.
What payout-ratio threshold do you treat as a yellow flag — 60%, 75%, higher for certain sectors? Always found the sector-dependence is where the simple rules break down.
