What is the difference between forward and trailing dividend yield?

A dividend yield can be calculated from two different dividend figures:

The trailing yield uses the dividends actually paid over the past twelve months.
The forward yield uses the dividends expected over the next twelve months, based on the latest announced dividend or on analysts' estimates.

Both divide by the current share price. They answer slightly different questions: what the investment has paid, and what it is expected to pay.

The formulas

\text{Trailing yield} = \frac{\text{Dividends paid over the past 12 months}}{\text{Current price}}

\text{Forward yield} = \frac{\text{Expected dividends over the next 12 months}}{\text{Current price}}

For a company that pays quarterly, a common estimate of the forward dividend is the latest quarterly payment multiplied by four:

D_{\text{forward}} \approx 4 \times D_{\text{latest quarter}}

A simple illustration

A stock trades at €50. Over the past year it paid four quarterly dividends of €0.40, and it has just announced an increase to €0.45 per quarter:

\text{Trailing yield} = \frac{4 \times 0.40}{50} = 3.2\% \qquad \text{Forward yield} = \frac{4 \times 0.45}{50} = 3.6\%

For a company that has just cut its dividend, the order reverses: the trailing yield still reflects the old, higher payments and overstates what the stock will pay.

When to use which

The trailing yield is based on facts rather than forecasts. It suits comparisons of past income, and companies that pay once a year, whose latest payment already covers a full year.
The forward yield reflects recent changes in the dividend. It is more relevant for estimating the coming year's income, especially after an increase or a cut.
For a portfolio, the forward view — current holdings multiplied by their latest dividend rates — is the basis of an income forecast.

Things to keep in mind

Special dividends inflate the trailing yield for a year; they are usually left out of forward estimates.
Forecasts can be wrong. Dividend estimates are revised, and companies under pressure can cut unexpectedly.
Timing matters for trailing figures. A payment falling a few days either side of the twelve-month cut-off can make the trailing yield count five quarterly payments, or only three.

A worked example

Worked through on a sample portfolio. The figures below are that portfolio’s, not yours.

Estimate my forward dividend yield

I can estimate a forward dividend yield for your portfolio using the holdings and their weights.

To proceed I need one of these from you (pick one):

your expected next 12 months of dividend payments for each holding (preferred), or
a single assumed dividend yield for each ETF/stock (I’ll apply it to their current values), or
allow me to use typical market dividend yields (I will apply generic yield assumptions to each holding).

Which option do you want? I’ll then show the calculation and the portfolio forward yield.

See these numbers for your own portfolio

Floreo works out every figure on this page from your own holdings — returns, risk, allocation, currencies — and the assistant explains them the way this page does. Import from your broker, or try it on the sample portfolio first.

Start Demo

The demo opens straight away on a sample portfolio — no account needed.