What is Total return?
Umumiy daromad
In short
The full return on an investment: price change plus dividends received, usually as a percentage.
Total return is the full result of an investment: the price change plus the dividends received over the same period. Looking only at the price chart understates the return of dividend-paying stocks.
Formula
Total return = (Ending price − Starting price + Dividends) ÷ Starting price × 100%
For multi-year periods dividends are usually assumed to be reinvested, which adds the effect of compounding. To compare long periods, an annualised (average yearly) return is used.
Why it matters
Comparing two stocks, or a stock against an index, on price growth alone is misleading. A company with a high dividend yield can rise more slowly in price yet still come out ahead on total return. Official fund and index performance is also often quoted on a total-return basis.
What it leaves out
The basic formula ignores taxes, broker fees and currency moves. What actually lands in your pocket is somewhat lower after those costs. Total return also measures past results — it does not guarantee the same in the future.
Investor return = price change + dividends. Look only at the price and you miss part of the return.
Example
You bought a hypothetical stock at $80. A year later the price is $86 and you received $2.40 of dividends during the year.
- Price return: ($86 − $80) ÷ $80 = 7.5%
- Dividend return: $2.40 ÷ $80 = 3%
- Total return: ($6 + $2.40) ÷ $80 = 10.5%
Comparison: stock A rose 5% and paid a 4% dividend — 9% total. Stock B rose 8% with no dividend — 8% total. On the chart B looks ahead, but on total return A won. To see long-term growth: compound interest calculator.
Mistakes and tips
When comparing a stock with an index, use total return for both — otherwise the dividend payer is penalised.
Don't simply divide a multi-year return by the number of years: 33% over 3 years is about 10% a year, not 11%.
A very high dividend yield is sometimes a sign the price has collapsed — total return can then be negative.
Calculate it
Frequently asked questions
- What is the difference between total return and price return?
- Price return shows only the change in price. Total return also adds the dividends received during the period.
- Does total return assume dividends are reinvested?
- Over a short period like one year, simply adding dividends is enough. Over long periods a reinvestment assumption raises the result somewhat, so check which method was used.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
Try the theory without risk
Open a free account: demo trading with a $10,000 virtual balance, a trading journal, calculators and a step-by-step course.