How to calculate return on a stock

1. What you paid. Shares × the price you bought at. 10 × $40 = $400.
2. What they're worth now. Shares × today's price (or the price you sold at). 10 × $50 = $500.
3. Dividends you received. Add up every payment. Here, $30.
4. Your gain. Worth now - what you paid + dividends. $500 - $400 + $30 = $130.
5. Your return. Gain ÷ what you paid. $130 ÷ $400 = 0.325, or 32.5%.

If the price had fallen to $35 instead, the math still works: $350 - $400 + $30 = -$20. Divide by $400 and your return is -5%. The dividends softened the loss.

A 32.5% return over three years is not 32.5% a year. To compare it with a savings rate or another stock, you need the yearly number.

Yearly return = (1 + return) ^ (1 ÷ years) - 1

For the made-up company over three years: 1.325 ^ (1 ÷ 3) - 1 = 0.098, or about 9.8% a year.

A lot of people divide by the years instead: 32.5% ÷ 3 = 10.8%. That's too high. Each year's gain builds on the last one, so the yearly rate is always lower than the simple average. The longer you hold, the bigger the mistake.

In a spreadsheet, the yearly formula is =(1+B1)^(1/B2)-1, with the return in B1 and the years in B2.

ADP is a payroll company. Here's what one share bought on October 31, 2016 did by October 30, 2026.

• Price paid: $87.06
• Price ten years later: $293.84
• Dividends paid along the way: $43.16 a share, in 40 quarterly payments

Leaving out dividends drops the yearly return from 14.5% to 12.9%. Some brokerage apps show only that first row.

Reinvesting adds more, because each dividend buys shares that earn their own dividends. Over ten years, one share grew into about 1.25 shares.

And dividing by the years would say 287.1% ÷ 10 = 28.7% a year. The real number is 14.5%.

Past returns don't tell you what a stock will do next. This is how to measure what already happened.

• Fees. Add the fee to what you paid and take it off what you got. With a $5 fee to buy and $5 to sell, the made-up example becomes ($495 - $405 + $30) ÷ $405 = 29.6%.
• Stock splits. If a stock splits 2-for-1, you have twice the shares at half the price. Use the split-adjusted price you paid (half the old one), or the numbers won't match.
• Buying more than once. Add up everything you paid and divide by the shares you own. That's your average cost. Buy 10 shares at $40 and 10 more at $50, and your average cost is $45. For buys on different dates, a spreadsheet's XIRR function gives the yearly return.
• Taxes. Every number on this page is before tax. What you keep depends on your account type and where you live.

Dividend yield is one year's dividends divided by today's price. A $2 dividend on a $50 stock is a 4% yield.

That's only part of the return. It leaves out what the price did. A stock with a 7% yield whose price falls 10% has lost you money, even with the dividends.

Your return depends on two things: what the business does while you own it, and the price you paid. You can't control the first, but you can control the second.

Pay less for the same business and your return goes up. That's why value investors estimate what a business is worth first, then only buy well below it. What price to pay for a stock shows how to get to that number. The margin of safety guide explains how far below fair value to buy, and what is intrinsic value? explains the estimate itself.

Estimating fair value by hand means ten years of numbers for every company you follow.

Wonderfolio estimates fair value from each company's own ten-year record. It derives buy, watch and sell zones from that fair value and flags when a price crosses into a buy zone. The decision stays with you.

Want to see it for one company? The free report runs a US or Canadian stock of your choice. Or try the free calculators.