Fair Price Based on Average Dividend Yield
When it comes to deciding the best time to buy stock there are plenty of different tools to help you decide.
One of the most interesting ones and one that you will find free to access here at Dividend & Growth is finding the Fair Price of stock based on the average dividend yield.
This is based off the Dividend Yield Theory by Quality Trends, better know as IQT. They came up with this idea all the way in the 1960’s but still many sites try to hide this analysis behind premium pay walls.
On this site we provide this data for free, there you go. Bonus, we explain how to calculate it yourself, another here you go.
How It Looks
Let’s say you are looking at a specific stock that you’re interested in.
A very popular one Bank of America Corporation (BAC) as of today (Oct. 10, 2025) costs $48.65, if you go to the BAC page under Fair Price you will find a chart, current price, three different columns and the conclusion if it is at a good price point. Example below:
Fair Price
Current Stock price is considered: Fair
| Current Price ● $ 48.65 |
| Less Than $ 37.71 | $ 37.71 – $ 54.63 | More Than $ 54.63 |
| Undervalued | Fair Price | Overvalued |
What It Means
The chart will quickly show you where the “Current Price” (●) falls into the range.
Each one represents:
Undervalued: if below this number the stock is at a great price to buy, read below for other things to note on undervalued.
Fair Price: If within this number the stock is at a good fair price, see below for more details on this range.
Overvalued: If above this number the stock price is too high, meaning the dividend increases perhaps did not keep up with the stock price or a sudden spike and no increased in dividend growth.
Based on the chart and data BAC as of today is considered Fair.
So it looks like a decent buy at this price point on this date.
How It works
This isn’t some made up number, it comes from analyzing existing data and making some calculations.
First you have to find the average dividend yield of the stock for the past 5 years.
We go back to our example for “BAC” it would be:
| 2020 | 2021 | 2022 | 2023 | 2024 |
| 2.81% |
1.95% | 2.38% | 3.07% | 2.53% |
Then you find the average of the 5 years.
In this case it would be 2.55%
You also need the current Forward Dividend of the Stock
In this case it would be $1.12 as of the date of this example.
Now let’s use the modified formula.
Fair Value Price = 100 × Annual Dividend / Average Dividend Yield
Fair Value Price = 100 x 1.12 / 2.55 = 43.92
So the Fair Price to buy “BAC” as in a price that would be considered a good value based on historical dividend yield would be $43.92.
Now to create a nice range for Fair Price we take smallest number of the 5 year average and add 0.1, then the biggest and subtract 0.1. This gives you a nice range of 10% around the Fair Price.
1.95 + 0.1 = 2.05
3.07 – 0.1 = 2.97
Plug it to the formula above and you get.
Overvalue Price = 100 x 1.12 / 2.05 = 54.63
Undervalued Price = 100 x 1.12 / 2.97 = 37.71
In Conclusion
Anything within the range of $37.71 – $54.63 you can consider it a Fair Price to buy the stock.
Anything lower than $37.71 would be considered Undervalued and a great price to buy.
Anything higher than $54.63 would be considered Overvalued and not a good time to buy.
Based on this you can decide if the stock is at a price point worth getting into or not there yet.
Changes to the Dividend during the year will make this fluctuate as well as any price changes could put this in a different value bracket, so keep an eye out for any jumps or drops.
Things To Note
Undervalued does not mean it’s a good buy all the time, the stock could be down due to bad news, money issues or dividend cuts, so look into factors that could have affected the price, if you see nothing of concern then the stock is undervalued and a good buy.
Fair Price in some cases might be nonexistent or a very small range, this is normal and means the 5 year average has been very consistently flat not allowing a good 10% +/- range to occur. Buying at Fair Price is really a personal preference and fine choice if you believe the stock will never drop to Undervalue.
Overvalued is just that the price kept going up, but the company did not care to increase the dividend to keep up with the price increase. If you prefer growth companies you would chase value of the current company and not worry too much about this, but the people looking for a place to jump in and chase dividends this would not be a good idea.
As always, this is a tool to help you make an educated decision, always do your due diligence before investing in the market.