How would you compute the equivalent yield between a 5% dividend taxed at 15% vs the same 5% dividend taxed at 35%. I know how to do TEY and get a 3.25% yield and a 4.25% yield for the two, but what would be the equivalent taxed yield between the two? My theory was to divide the 5% yield by 1 minus the difference in tax rates. This would be 5/.8 which would equal 6.25%. Another way would be to multiply the 5% by .85 to get the taxed yield, and then divide this by the .65 to get the yield of 6.54%. In a nutshell: a yield of 5% taxed at 15% is equal to what yield taxed at 35%?
you answered your own question, 6.54% would be the right way