Dividend Amount
If a stock pays quarterly, take all four payments and voila, you get your annual dividend amount you can use in the above calculation. The same way, for stock that pays monthly, take the monthly amount and multiply by 12. So far so good.

What about specials?
This is interesting one. Some companies pay not only nice regular dividend 4 times a year, they throw a little extra at the end as the fifth payment, called special dividend or shortly special. A typical example is Redwood Trust (RWT) or Novastar Financial (NFI). They both are Mortgage REITs (Real Estate Investment Trust) and by law are required to pay at least 90% of their taxable earnings as dividends. To keep their REIT status, they may in a good year pay an extra dividend (for instance in 2004). So really, their dividend calculation would be

Dividend Yield = ((Regular Dividend Amount + Special Amount) / Current Stock Price) * 100

For example, if you look at performance of Fording Coal Trust (FDG) you may see a nice steady growth in price, while the trailing yield may not be all that amazing (as of July 2005). What drives the price? It's the expectation of dividend growth due to growing prices of their main product - coking coal used to produce steel, driven by increasing demand from China. Clearly, growing stock price indicates that many believe Fording's dividend will increase going forward.

But the company said...
By the way, the fact that the company says they feel comfortable at present with their dividend amount is by no means an indication this is not going to change in the near future. Just look at some news of Impac Mortgage (IMH), another Mortgage REIT. When they changed their outlook from "comfortable with dividends" to "will review dividend payment policy" from one quarter to another (June 2005), stock price reacted pretty swiftly - downward. How to protect against such price drop is a different topic for another day...

Foreign Issues
Great, you've got this urge to invest in a Canadian Royalty Trust, say Provident Energy (PVX). So how much money are you going to get every month? Annualized yield well over 10%, huh? Well, not so quickly. Foreign stocks are subject to tax withholding by foreign governments, in this example by Canadian government. They will keep 15% of every payment which you may or may not be able to claim back as foreign tax credit at tax time. Also, when they declare dividend, the amount is in Canadian dollars, so the current exchange rate also plays role! This is not to say that CanRoys (Canadian Royalty Trusts) are not wonderful as dividend income producing stocks! Just something to think about and discuss with your tax advisor. They are a good example of what you see is NOT what you get in terms of published dividend yields.

Speaking of taxes
Some dividends are qualified for the 15% tax treatment in the US, while others are non-qualified and are taxed at your current income tax level. It is always a good idea to be sure which one it is, before you commit your money. Moreover, there are Municipal Bond funds (check CEFs) out there, which may be tax exempt from federal, state or local taxes or even all of them!

The bottom line
of understanding dividend yields is this: there is no one number that tells the whole story. It is important to understand what the trailing dividend yield is, whether the company pays specials and what the projected dividend going to be in the next 12 month period. It is no less important to understand any tax implications of dividend income as well as any foreign exchange rates impact. All these factors and your specific purchase price will determine your actual dividend yield!