# How do I factor dividends and yield into the performance of a security?

The basic stock chart tracks the price of the stock. As discussed here the price of the stock drops by the amount of the dividend. So when a dividend pays out the stock chart makes it look like shareholder value decreased even though it didn't. (The stock price decreased by the amount of the dividend that was paid to shareholders.)

So how do I factor in the dividend to see the true shareholder value in graphical format?

Instead of a price chart can use a performance chart, which is usually expressed as a percentage increase from the original purchase price. To factor in the dividends, you can either add in all of your dividends to the final price, or subtract the accumulated dividends from your cost basis (the initial price).

• To be super-correct you should adjust the dividends for time value of money (interest earned keeping the dividends invested after you get them) when doing this calculation, but it probably doesn't make a big difference unless it's over a long timespan. See also money.stackexchange.com/questions/8129/… on computing investment returns. Commented May 6, 2011 at 2:06
• Hmm. I guess hyper-correct would be to adjust the number of shares as if purchased with each dividend. Just accounting for dividends on the side will eventually have half stock / half cash and not truly reflect the compound growth of the stock. Commented May 6, 2011 at 4:00
• Both good comments. I was referring to the simple case in which you measure the return from point A to point B. Anyone know any chart sites which actual do the above? Commented May 6, 2011 at 12:44

Usually I've seen people treat the dividend like a separate cash flow, which is discounted if the company doesn't have a well-established dividend history. I've never really seen dividends rolled into a total return chart (except in the context of an article), probably because dividend reinvestment is a nightmare of record-keeping in a taxable account, and most folks don't do it.

One of my brokers (TD Ameritrade) does allow you to plot dividend yield historically on their charts.

Good observation. In fact, the S&P index itself is guilty of not including dividends. So when you look at the index alone, the delta between any two points in time diverges, and the 20 return observed if one fails to include dividends is meaningless, in my my humble opinion.

Yahoo finance will let you look at a stock ticker and offer you an "adjusted close" to include the dividend effect.