What is the dividend yield formula?

Dividend yield = (annual dividend per share ÷ current share price) × 100. It tells you the cash return a stock pays relative to its price.

How do you calculate the ceiling price of a dividend stock?

Using the Bazin method: ceiling price = average annual dividend of the last 5 years ÷ target dividend yield. If a stock paid an average of $2 and you want a 6% yield, the ceiling price is $2 / 0.06 = $33.33.

What is the Bazin method?

The Bazin method, popularized by Décio Bazin, values a dividend stock by dividing its average dividend by the investor's minimum acceptable yield — producing a ceiling price above which the stock is considered overpriced.

Investing Guide

How to calculate the ceiling price of a dividend stock

The Bazin method is one of the simplest and most widely used dividend valuation frameworks. It answers a single question: what is the highest price I can pay for this stock and still earn the yield I want? This guide walks through the dividend yield formula, the Bazin ceiling price formula, worked examples, and the edge cases that trip investors up.

The dividend yield formula

Dividend yield measures the annual cash return a stock pays relative to its price:

Dividend Yield = (Annual Dividend per Share ÷ Current Share Price) × 100

If a stock trades at $50 and paid $2.50 in dividends over the last 12 months, its dividend yield is 5%. Yield changes every time the price moves — which is why long-term investors track yield on cost (dividend ÷ your purchase price) separately.

The Bazin ceiling price formula

Décio Bazin flipped the yield equation. Instead of asking "what yield does today's price give me?", he asked "what price gives me the yield I require?":

Ceiling Price = Average Annual Dividend (last 5 years) ÷ Target Dividend Yield

The result is your maximum fair price. Any price above it means the stock is too expensive for your yield target; any price below it means there is a margin of safety.

Worked example

A stock has paid the following dividends per share over the last five years: $1.80, $2.00, $2.10, $2.20, and $1.90.

Average dividend = (1.80 + 2.00 + 2.10 + 2.20 + 1.90) ÷ 5 = $2.00
Target yield = 6% (your minimum acceptable return)
Ceiling price = $2.00 ÷ 0.06 = $33.33

If the stock trades at $28, you have a ~19% margin of safety and a projected 7.1% yield on cost. If it trades at $40, you are paying 20% above ceiling and locking in only a 5% yield.

Edge cases to watch

Dividend cuts. The 5-year average smooths one bad year, but a permanent cut breaks the model. Check the payout ratio and free cash flow before trusting the ceiling price.
Withholding tax. US-domiciled stocks, REITs, and ETFs withhold 30% of dividends for foreign investors. Apply the tax to the dividend before running the formula, or you will overestimate the ceiling.
Currency. Compare BRL dividends to a BRL target yield and USD dividends to a USD target yield — never mix.
REITs, FIIs, and ETFs. These pay monthly. Multiply the trailing 12 monthly distributions to get the annual figure before averaging.

Skip the spreadsheet

Fuente Price Pro runs this calculation automatically for any US stock, REIT, ETF, or Brazilian FII — including withholding tax, currency, and payment cadence.

Calculate a ceiling price