How to Calculate Multiple Year Holding Period Returns With Dividends

It is important to monitor your investments’ returns to see if you are meeting your investment objectives. If you’ve held a dividend-paying stock for more than one year, you can calculate its multiple-year holding period return to gauge its performance. A holding period return is the percentage return an investment generates during any period, such as six months or five years. The holding period return formula accounts for the change in stock price and the dividends you receive during your holding period. Stock price appreciation and dividends increase your return, while a drop in price decreases your return.

Step 1

Add together the dividends per share you received from the stock during each year of your holding period. Multiply your result by the number of shares you owned to determine the total dividends you received. For example, assume you owned 100 shares of stock for three years and received \$1 in dividends per share each year. Add \$1, \$1 and \$1 to get \$3. Multiply \$3 by 100 to get \$300 in total dividends.

Step 2

Find, in your records, the price per share you paid for the stock and the price per share for which you sold it. If you still own the stock, use the current market price as the selling price per share. Multiply each price per share by the number of shares you owned to determine your purchase price and sale price. In this example, assume you paid \$23 per share for the stock and sold it for \$37 per share. Multiply each number by 100 to get a \$2,300 purchase price and a \$3,700 sale price.

Step 3

Substitute the values into the holding period return formula: (S + D - P) / P. In the formula, S represents the sale price, D represents the total dividends and P represents the purchase price. In this example, the formula would be (\$3,700 + \$300 - \$2,300) / \$2,300.

Step 4

Calculate the numbers in parentheses in the numerator. Continuing the example, add \$3,700 to \$300 and subtract \$2,300 to get \$1,700. This leaves \$1,700 / \$2,300.

Step 5

Divide the numerator by the denominator. In this example, divide \$1,700 by \$2,300 to get 0.739.

Step 6

Multiply your result by 100 to calculate the multiple-year holding period return as a percentage. If you get a negative result, the stock generated a negative return. Concluding the example, multiply 0.739 by 100 to get a 73.9 percent return over your three-year holding period.

Warning

• A multiple-year holding period return differs from an annual rate of return, which measures the return an investment earns each year of a holding period. Comparing a multiple-year holding period return with an annual return might result in an inaccurate assessment of an investmentâ€™s performance.

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