Why the yield you’re getting on ASX dividend shares may not be as advertised

ASX dividend shares have been rising on investor radars in 2022 as increasing interest rates threaten to cut into capital gains in the year ahead.

If you’re on the hunt for income stocks just take note, that the 12-month yield you’re getting on ASX dividend shares in your portfolio is likely to be higher – or lower – than what you’ll find posted today. It’s also likely to vary from the yield other investors are earning.

That’s based on the original amount of your investment, not the current share value.

Here’s what we mean.

Calculating the yield from ASX dividend shares

To be clear we’re talking about trailing dividend yields here, which you can work out by dividing a company’s past 12-month dividend payouts by its current share price. That’s as opposed to a forward dividend yield, which relies on earnings forecasts.

To keep it simple, we’ll assume you’re buying all the shares in one swoop, rather than incrementally, via dollar cost averaging.

We’ll take two popular ASX dividend shares as our example, BHP Group Ltd (ASX: BHP) and National Australia Bank Ltd (ASX: NAB).

Both companies’ dividends come with full franking credits, meaning you get credit from the ATO for the 30% tax the company has already paid on its profits in Australia. This avoids double taxation.

So, why are the 12-month yields you’re getting from an ASX dividend share going to be markedly different from many other investors?

BHP and NAB

The answer to that question lies when you buy the shares.

Starting with BHP, the S&P/ASX 200 Index (ASX: XJO) listed miner made two dividend payments in the past 12 months, totalling $4.80.

At the current share price of $37.92, this works out to a dividend yield of 12.8%.

To have received both payments you would have had to buy BHP shares on or before 2 September 2021.

Now here’s how yields for this ASX dividend share can vary significantly between investors.

On 4 August BHP shares were trading for $54.06. If you bought shares then, your 12-month yield on those shares is 8.9%.

On the other hand, if you’d bought BHP shares on 20 August, when the miner was trading for $44.34, your 12-month yield would be 10.8%.

In other words, a two-week variance in buying this ASX dividend share resulted in a 1.9% difference in the yield.

And neither figure is as impressive as the 12.8% yield you’ll find currently listed under today’s lower BHP share price.

Taking NAB as our second example, the big four bank also made two dividend payments over the past 12 months, totalling $1.40

At NAB’s current share price of $28.29, that’s a dividend yield of 5%.

To have received both payments you would have had to buy NAB shares on or before 15 November 2021.

But far from every investor who bought shares between 14 July and 15 November 2021 is receiving a 5% yield.

On 20 July, for example, the NAB share price stood at $25.47. Had you bought shares on that date, the yield from this ASX dividend share would be 5.5%.

But if you’d waited until 10 November to invest in NAB, you would have paid $30.15 per share. That would see your 12-month yield reduced to 4.6%.

In the first instance, your personal investment yield is higher than what you’d find posted based on today’s share price, and in the second case, it’s lower.

Foolish takeaway

Timing the market is no easy feat. And no one, to our knowledge, has demonstrated an ability to do so consistently.

Nonetheless, when you’re able to buy ASX dividend shares during a pullback rather than a bounce, your yields will benefit.

The post Why the yield you’re getting on ASX dividend shares may not be as advertised appeared first on The Motley Fool Australia.

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More reading

• Surprise US inflation pumps the brakes on ASX 200 bank shares
• These ASX 200 mining shares are bolstering the market today
• Why did the Rio Tinto and BHP share price struggle today?
• What’s the outlook in FY23 for ASX 200 bank shares?
• Analyst names 3 reasons to be bullish on the BHP share price

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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