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Realized and Implied Dividend Yield from Equity Prices

Article Quant Q&A · Author: Sam
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Summary

The answer distinguishes realized dividend yield from implied dividend yield. Realized yield uses dividend payments over the preceding year divided by the current equity or index price. Implied yield uses forecast dividend payments over the coming year divided by the current price. These definitions provide a practical way to interpret dividend yield when working with market data, including a value-weighted market portfolio.

The answer adds that dividend yield can also be inferred from forward prices, but this continuous yield is not identical to the discrete yield calculated by summing forecast cash dividends. The two measures are said to be close in many cases, though the response gives no derivation, data example, or detailed procedure for computing the yield from a specific dataset. The distinction matters when replicating a research definition: the selected method depends on whether the goal is a historical realized measure, a forecast-based measure, or a forward-implied continuous rate.

Key ideas

  • Realized dividend yield divides the prior year’s dividend payments by the current equity price.
  • Implied dividend yield divides forecast dividends for the coming year by the current price.
  • A continuous dividend yield inferred from forward prices differs from a discrete dividend sum, though the measures are often close.
  • The calculation method should match the intended historical, forecast, or forward-based definition.

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# How do I calculate Market Dividend Yield from this data?


# How do I calculate Market Dividend Yield from this data?












Thanks for reading,

I am trying to calculate the market dividend yield for this set of data.

The authors define it as 'The market dividend yield (MDY) is the one-year dividend from the CRSP value-weighted market portfolio divided by the current price'.

I haven't got a clue, I was wondering if someone could help.

The paper is Hong, H., Torous, W., and Valkanov, R., Do Industries Lead Stock Markets? Journal of Financial Economics, 83(2) 367-396, 2007.

And the data can be download from the link: http://rady.ucsd.edu/faculty/directory/valkanov/.

Thanks.

Sam

## Answer by Gordon (score 2)

https://quant.stackexchange.com/a/27523

The dividend yield can be computed from the forward prices. However, in practice (e.g., in Bloomberg), the realized dividend yield is computed as the sum of the dividend payments from the whole past year divided by the current equity (stock or index) price, while the implied dividend yield is computed as the sum of the forecast dividend payments, over the whole year forward from the current time, divided by the current equity price.

Note that, the implied dividend yield computed as above is not the same as the continuous dividend yield computed from the forward price, however, they are close, most of the time. For computation of the dividend yield from discrete dividend payments, you can refer to this question for a clue.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.