CFA Level I Exam · Sources of Equity Returns

Equity Return Components: Price Return and Dividends

Updated 7 October 2026 · Fact-checked

Equity return has two parts: price return, the change in share price, and dividend income, the cash paid to holders. Total return adds them. Holding period return = (P1 − P0 + D) ÷ P0. Divide by the starting price, include every dividend received, and check whether the question asks for price return or total return.

Understand Equity Return Components: Price Return and Dividends

When you buy a share, you can earn money in two ways. The share price can rise, which gives a capital gain. The company can also pay you a dividend, which is cash income. These two sources are the components of equity return.

Price return looks only at the change in price. It ignores dividends. If a share goes from 100 to 110, the price return is 10%. Total return includes both the price change and the dividends received over the period. If that same share also paid 3, the total return is 13%.

The period you hold the share is the holding period. The holding period return (HPR) is the return over that whole period, whether it is a day, a year or five years. It is not automatically annual. Dividends are measured as a percentage of the beginning price, so the total return splits neatly into price return + dividend yield.

Price indexes track only price return. Total return indexes assume dividends are reinvested. This is why a total return index usually grows faster than the price index of the same stocks when the stocks pay dividends. Over long periods, the dividend component can be a large share of the total.

If the question includes reinvestment of dividends, the dividend buys more shares, and those shares earn later returns. In that case the dividend return is not just D ÷ P0. You must track the value of the reinvested position.

Key formulas to remember

Price return: Price return = (P1 − P0) ÷ P0; P0 is the beginning price and P1 the ending price. Dividends are ignored.
Dividend yield (over the holding period): Dividend yield = D1 ÷ P0; Use dividends received during the period divided by the beginning price.
Total return / holding period return: HPR = (P1 − P0 + D1) ÷ P0 = Price return + Dividend yield; Valid when dividends are received but not reinvested during the period.
HPR with multiple dividends: HPR = (P1 − P0 + D1 + D2 + … + Dn) ÷ P0; Add all cash dividends received in the period. This simple form ignores reinvestment income.
HPR from ending value: HPR = (Ending value ÷ Beginning value) − 1; Ending value includes the final price plus any dividends or reinvested proceeds.

How to solve Equity Return Components: Price Return and Dividends questions

Use this method for any question on price return, dividends or holding period return.

1Read what is asked: price return, dividend yield or total return (HPR).
2List P0, P1 and every dividend received in the period.
3Check whether dividends are reinvested. If the question does not say so, assume they are not and add them as cash.
4Compute the price return as (P1 − P0) ÷ P0.
5Compute the dividend yield as total dividends ÷ P0.
6Add the two to get total return, or use (P1 − P0 + D) ÷ P0 directly.
7Check that the period matches the question. Do not annualize unless asked.
8Choose the option that matches your result. Remember the options run smallest to largest.

Quickest way: Gain over cost shortcut

When to use it: Use it when the question gives prices and dividends for one period and asks for total return.

Find total gain per share: (P1 − P0) + D.
Divide by P0 only, never by P1.
Cross-check: if D > 0, total return must be larger than price return alone. Total return equals price return only when D = 0.
Eliminate options that equal the price return alone or that divide by the wrong price.
On the TI BA II Plus, key: P1 − P0 + D ÷ P0 = then × 100 for a percent. Use brackets or compute the numerator first.

Common mistakes in Equity Return Components: Price Return and Dividends

Dividing by the ending price instead of the beginning price.
The ending price is the latest number on the page and feels like the base.
Fix: Return is always gain ÷ amount invested at the start. Use P0 as the denominator.
Forgetting dividends when asked for total return.
The price change is the first thing you compute and it looks like the answer.
Fix: Underline 'total return' in the stem and add D before dividing. A wrong option often equals the price return.
Reporting price return when the question asks for dividend yield, or the reverse.
Candidates rush and answer the part they computed last.
Fix: Write the three labels: price return, dividend yield, total return. Circle the one requested.
Adding dividends from more than one period when only one period is asked about.
The stem lists several dividends, including some outside the holding period.
Fix: Include only dividends received between purchase and sale.
Treating reinvested dividends as simple cash.
The simple formula is so familiar that the reinvestment wording gets missed.
Fix: If dividends are reinvested, find the number of shares bought, then compute ending value and use ending ÷ beginning − 1.
Treating a multi-year HPR as an annual return.
The word 'return' is read as 'per year'.
Fix: HPR covers the whole holding period. Annualize only when the question asks, using the compounding method.

Worked examples

Example 1

An investor buys a share at $40.00. One year later she sells it at $44.00. During the year she received dividends of $1.20. What is her total return over the year?

Show the solution

P0 = 40.00, P1 = 44.00, D = 1.20.
Price return = (44.00 − 40.00) ÷ 40.00 = 4.00 ÷ 40.00 = 10.0%.
Dividend yield = 1.20 ÷ 40.00 = 3.0%.
Total return = 10.0% + 3.0% = 13.0%.
Check: (44.00 − 40.00 + 1.20) ÷ 40.00 = 5.20 ÷ 40.00 = 13.0%.

Answer: Total return = 13.0%. The price return alone is 10.0%, so 10.0% is the trap option.

Example 2

A share is bought at €50.00. Over 18 months it pays dividends of €1.00 and €1.50, and it is sold at €46.00. Dividends are not reinvested. What is the holding period return and the price return?

Show the solution

P0 = 50.00, P1 = 46.00, total dividends = 1.00 + 1.50 = 2.50.
Price return = (46.00 − 50.00) ÷ 50.00 = −4.00 ÷ 50.00 = −8.0%.
Dividend yield = 2.50 ÷ 50.00 = 5.0%.
HPR = −8.0% + 5.0% = −3.0%.
Check: (46.00 − 50.00 + 2.50) ÷ 50.00 = −1.50 ÷ 50.00 = −3.0%.
The 18-month figure is a holding period return, not annual, so no annualizing is needed.

Answer: Holding period return = −3.0% over 18 months. Price return = −8.0%. Dividends reduced the loss.

Exam tips

Options are in ascending order. Compute your answer first, then match it. Do not guess from the position.
The trap option is usually the price return only, or the gain divided by the ending price. Compute both so you can reject them.
If a stem says 'reinvested', slow down and compute ending value, not just the simple sum.
A negative price return can still give a positive total return if dividends are large enough. Check the sign before choosing.
With 90 seconds per question, this calculation should take under a minute. Move on once you have checked the denominator.

Practice questions from Sources of Equity Returns

Equity Return Components: Price Return and Dividends: frequently asked questions

What is the difference between price return and total return?

Price return counts only the change in share price. Total return adds the dividends received. For a dividend-paying share, total return is higher than price return, whether the price rises, stays unchanged or falls.

How do you calculate holding period return with dividends?

Subtract the beginning price from the ending price, add all dividends received, and divide by the beginning price. The formula is (P1 − P0 + D) ÷ P0. The result covers the whole holding period.

Is dividend yield part of total return?

Yes. Total return equals price return plus dividend yield, where dividend yield is dividends received divided by the beginning price. Together they are the two components of equity return.

Does the simple HPR formula include reinvested dividends?

No. The simple formula treats dividends as cash received and not reinvested. If the question states reinvestment, compute the ending value of the position including the extra shares, then divide by beginning value and subtract 1.