How To Calculate

Learn how to calculate anything
Menu
  • bmi
Home
Shares
How to Calculate Dividend Yield.
Shares

How to Calculate Dividend Yield.

Rosemary Njeri

What is a Dividend?

Before discussing how to calculate dividend yield, lets begin by defining what a dividend is. A dividend is a portion of a company’s profits that it distributes to shareholders. Dividends are paid out in addition to any gains in the value of the company’s shares and reward shareholders for holding a stock.

Additionally, dividends are more common among established companies that can afford not to invest all of their profits back into the business.

What is Dividend Yield?

Dividend yield is the financial ratio that measures the quantum of cash dividends paid out to shareholders relative to the market value per share. The yield is presented as a percentage, not as an actual dollar amount. This makes it easier to see how much return the shareholder can expect to receive per dollar they have invested.

Generally speaking, the higher the dividend yield, the better as it means the potential return from dividends is higher relative to the price you pay for the investment. However, a dividend yield that is too high might be unsustainable. Unexpectedly high yield may be caused by;

  • If a company’s stock price has recently plummeted. If a stock has seen a dramatic price decline and its dividend hasn’t been cut yet, the yield can appear high.
  • If a company is attempting to woo investors with a high dividend payment. Some companies try to give their stock prices a boost by increasing the dividend to attract new investors. Impressed by the high dividend yield, some investors may buy shares, driving up the stock price

Hence, it is important to check the payout ratio before you make your decision. Also dividend yield cannot be negative since the annual dividends and share price can’t be negative.

Importance of Dividend Yield.

  • Dividend yields make it easy to compare stocks. If you’re an income investor, you’ll want to compare and select stocks based on which pay you the highest dividend per dollar you invest.
  • Increasing dividend yield indicate financial health. If a company chooses to raise its dividend this tells investors that the company is doing well since it can afford to pay out more of its profits to shareholders.
  • Dividends boost return. When you reinvest your dividends, instead of cashing them out every year or quarter, your investment benefits from compounding. Over time, compounding effects can drastically enhance your returns.

Formula to Calculate Dividend Yield.

Calculate Dividend Yield.

Example:

If the annual dividend per share of Company X is $ 30 and the company’s stock price per share is $ 25, calculate the dividend yield.

Calculate Dividend Yield.

Thus, the company’s dividend yield is 72%.

Share
Tweet
Reddit
Pinterest
Email
Prev Article
Next Article

Related Articles

How to Calculate Preferred Dividends.
What are Preferred Dividends? In this article, we are going …

How to Calculate Preferred Dividends.

How to Calculate Household Income.
Household income is the total amount of money earned by …

How to Calculate Household Income.

Leave a Reply Cancel Reply

Popular Posts

  • 5 Best AI Apps for Solving Complex …
    March 22, 2023 0

Categories

learntocalculate.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

How To Calculate

Learn how to calculate anything

Pages

  • About Us
  • Contact Us
  • Privacy Policy
Copyright © 2023 How To Calculate

Ad Blocker Detected

Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker.

Refresh