Forward Dividend Yield: Meaning and Example

The forward dividend yield measures expected dividend income over the coming year relative to the stock’s current price.

Unlike a trailing dividend yield, which uses dividends already paid, forward dividend yield uses expected or announced future dividends.

How It Works

A common version is:

expected next-12-month dividends per share / current share price

Because it relies on expected dividends, forward dividend yield can change even if the stock price stays the same, especially when management changes the dividend policy.

Worked Example

Suppose a stock trades at $50 and investors expect it to pay $2.50 in dividends over the next year.

Its forward dividend yield is:

$2.50 / $50 = 5%

If the expected dividend is later cut to $2.00, the forward dividend yield falls to 4% unless the share price also changes.

Scenario Question

A shareholder says, “If the trailing dividend yield is 5%, the forward dividend yield must also be 5%.”

Answer: No. Forward yield changes when expected future dividends differ from the dividends paid in the past.

Related Terms

• Dividend Yield: The general dividend yield concept.
• Gross Dividend Yield: Gross yield focuses on dividend income before taxes.
• Dividend Growth Rate: Expected dividend growth directly affects forward yield.
• Dividend Payout Ratio: Payout policy shapes future dividend expectations.
• Forward Price-to-Earnings (P/E) Ratio: Both are forward-looking valuation measures based on expected fundamentals.

FAQs