Yield Trap — How a Stock Price Drop Creates "Illusory High Yield"
Drag the stock price slider down to see how yield can double even when the dividend stays the same.
Stock Price$40.00
Annual Dividend$1.00
Dividend Yield
2.5%
Price Change
±0%
Dividend Change
±$0.00
Baseline: Stock $40.00 · Dividend $1.00 (Yield 2.5%)
Payout Ratio — What Percentage of Earnings Goes to Dividends
Raising the dividend too high pushes the payout ratio into dangerous territory. Above 80% triggers a warning; above 100% means the company is paying out more than it earns.
EPS (Earnings Per Share)$2.00
Dividend$0.60
Payout Ratio
30%
Dividend 30%
Reinvested 70%
Paid as dividendReinvested in business
Healthy level. There is room to maintain the dividend even if earnings decline.
Total Return — Judging by Dividend Yield Alone Can Mislead
Compare two stocks side by side. See how a high dividend yield can still lose to a lower-yield stock when share price decline is factored in.

Stock A

Price Change-30%
Dividend Yield5.0%
-25.0%

Stock B

Price Change+20%
Dividend Yield1.0%
+21.0%
Stock B leads in total return. Dividend yield alone does not measure investment performance.
Tax Impact — Take-Home Is Less Than the Stated Yield
Compares after-tax annual dividend income on a $10,000 investment. US stocks are subject to double taxation, further reducing net income.
Gross Yield5.0%
Domestic Stock (After Tax)
3.98%
US Stock (After Tax)
3.59%
Difference
-0.40%
Domestic
$398
$398
US Stock
$359
$359
US stocks face double taxation: 10% withheld locally + ~20% domestic tax. A foreign tax credit claim on your tax return may partially offset this.