Hong Life CalculatorsUnderstanding the capital gains yield calculator — concept and principle
This calculator splits a share's holding-period return into the capital gains yield (from the price change) and the dividend yield, adds them to get the total return, and annualizes the result for multi-year holdings. It also shows the gain per share and how much of the return came from the price change. Use it to evaluate a past investment, compare stocks or study dividend models.
How it is calculated
- Capital gains yield = (selling price − purchase price) ÷ purchase price × 100.
- Dividend yield = dividends received ÷ purchase price × 100.
- Total return = capital gains yield + dividend yield.
- Annualized total return = ((price + dividends) ÷ purchase price)^(1/years) − 1, ignoring reinvestment of dividends.
- Share from the price change = capital gains yield ÷ total return.
The principle
A shareholder earns in two ways: the price can rise, and the company can pay dividends. Measuring both against the purchase price puts them on the same scale so they can be added. In the constant-growth dividend discount model, the share price grows at the same rate as dividends, so the expected capital gains yield equals the dividend growth rate g, and the total expected return is dividend yield + g. Annualizing turns a multi-year return into a comparable yearly rate.
Worked example
Default inputs: bought at $50, now $56, dividends $1.50, held 1 year.
- Capital gain per share = 56 − 50 = $6.
- Capital gains yield = 6 ÷ 50 = 12%.
- Dividend yield = 1.50 ÷ 50 = 3%.
- Total return = 12% + 3% = 15%; annualized over 1 year it is also 15%.
- Share of total return from the price change = 12 ÷ 15 = 80%.
| Purchase price per share | Capital gains yield |
|---|---|
| 12.5 | 348% |
| 25 | 124% |
| 37.5 | 49.33% |
| 50 | 12% |
| 62.5 | -10.4% |
| 75 | -25.33% |
| 100 | -44% |
How to read the result
A high capital gains yield with a low dividend yield is typical of growth stocks; the reverse is typical of income stocks. The capital gain is unrealized until you sell, and it can reverse. Compare annualized returns, not raw totals, when holding periods differ.
Common mistakes
- Using the current price as the base instead of the purchase price.
- Forgetting dividends, which understates the total return.
- Comparing a three-year total return with a one-year return without annualizing.
- Confusing the yield with the tax on gains, which depends on your country and holding period.
Frequently asked questions
What is the difference between capital gains yield and dividend yield?
Capital gains yield comes from the price change; dividend yield from the cash paid out.
Can capital gains yield be negative?
Yes, when the price falls below the purchase price.
How is it used in the Gordon growth model?
In that model the expected capital gains yield equals the constant dividend growth rate g.
Sources: Total return = capital gains yield + dividend yield (standard holding-period return formulas; e.g. OpenStax, Principles of Finance (2022), Ch. 11 Stocks and Stock Valuation)