Lesson 4 of 6 · All lessons in this module
- Dividends, splits, buybacks and the payment timelineVideo lesson
- Why companies pay dividends, buy back, split or consolidate
- Reading the price change on the ex-dividend date
- Price return, total return and reinvested dividends
- Integrated cases: reinvested quarterly dividends, a split and the dividend calendar
- Today's price from expected dividends and a target price
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 4 of 6 · 14 min
Price return, total return and reinvested dividends
An equity holding earns price change plus dividends; measure both on the same share basis after splits, and if dividends are reinvested in more shares, the extra shares share in the later price change.
In short
- Price return = ; total return adds the dividend: .
- After a split, reverse split or stock dividend, put the purchase price and the dividend on the same share basis before computing the return. The split itself does not change the return.
- Dividends received mid-period can be reinvested: at a cash rate (grow to the period end) or in the stock, buying extra shares, which can be fractional.
- Over several periods with reinvestment, the holding period return equals the compounded periodic total returns.
- Dividends are the more predictable part of expected return; price indexes leave them out, total return indexes reinvest them, and the gap can be large over decades.
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