Dividend Yield

What is Dividend Yield ? What does Dividend Yield tell you?

Dividend Yield is the percentage of return / earnings generated from an investment in a stock. It is the total annual dividend payment on each share of stock made by a company in a year in relation to the market price of the share. It is calculated by dividing the total annual dividend earned on a stock by the market price of the stock.

What is the Dividend yield formula ?

The dividend yield on a stock is calculated using the following formula  :

Dividend Yield = Annual Dividend / Ending price of stock

How are Dividend yield and Dividend rate different ?

The Dividend rate is the rate of dividend paid by a company on its par value of share. It is calculated by dividing the dividend paid by the par value of share.

The dividend payable is calculated by multiplying the Par value of a share of stock by the rate of dividend.

Whereas dividend yield is a measure of how much dividend an investor earns on the current value of its investment i.e., the current market price per share of stock.

How do you interpret Dividend yield ?

When the market value of the stock decreases, the dividend yield increases. In case of an increase in the market value of the stock, the dividend yield decreases.

How do you calculate stock dividend yield?

Example 1 :

Cashjoy Co. has declared semi annual dividends of $ 10.00 per share in June 2020 and $ 20.00 per share in December 2020. The market price of the stock is = $ 200.00. Calculate the dividend yield.

Solution :

The dividend yield on a stock is calculated using the following formula  :

Dividend Yield  =  Total Annual Dividend / Market price of stock

 

As per the Information provided in the question

Total Annual Dividend = $ 10.00 + $ 20.00  = $ 30.00  ;   Market price of stock = $ 200.00 

 

Thus the dividend yield of the stock is

= $ 30 / $ 200

= 0.15

= 15.00  %

Thus the Dividend Yield = 15 %

 

Example 2 :

Cashjoy Co. has declared semi annual dividends of $ 20.00 per share in June 2020 and $ 30.00 per share in December 2020. The market price of the stock is = $ 250.00. The tax rate on dividends is  20 %. Calculate the after tax dividend yield.

Solution :

The after tax dividend yield of a stock is calculated using the formula

After tax Dividend Yield = [ Annual Dividend *( 1 – Tax rate ) ] / Market price  of stock

 

As per the Information provided in the question

Total Annual Dividend = $ 20.00 + $ 30.00  = $ 50.00  ;   Market price of stock = $ 250.00  ; Tax rate = 20 % = 0.20  ;

 

Thus the dividend yield of the stock is

= [ $ 50 * ( 1 – 0.20 ) ] / $ 250

= [ $ 50 * 0.80 ] / $ 250

= $ 40 / $ 250

= 0.16

= 16.00  %

Thus the After tax Dividend Yield = 15 %

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