A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:
Quantifies the relationship between DPS (dividend per share) and market price per share.
Dividend Yield = DPS (Dividend Per Share)
Market Price Per Share
Dividend yield is a way to measure how much cash flow you are getting for each rupee invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends. Investors who require a minimum stream of cash flow from their investment portfolio can secure this cash flow by investing in stocks paying relatively high, stable dividend yields.
Note that dividend yield changes because of two things. First, the stock price goes up (yield drops) or down (yield increases). Second, the company increases the dividend (yield increases) or cuts the dividend (yield drops). However, note that the yield being paid at the time we purchase the stock is what we investment will earn from dividends as long as you hold the stock, regardless of what the share price does. Dividend yield is an important part of your rate of return on an investment. If we purchase a stock that goes up by 8% in a year while paying a 3% dividend, then we've earned 11% on your money.
Note that dividend yield changes because of two things. First, the stock price goes up (yield drops) or down (yield increases). Second, the company increases the dividend (yield increases) or cuts the dividend (yield drops). However, note that the yield being paid at the time we purchase the stock is what we investment will earn from dividends as long as you hold the stock, regardless of what the share price does. Dividend yield is an important part of your rate of return on an investment. If we purchase a stock that goes up by 8% in a year while paying a 3% dividend, then we've earned 11% on your money.
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