What is the Dividend Yield you are earning

Dividends represent the distribution of a portion of a company's earnings or profits to its shareholders. Typically, these dividends are paid in cash, although they can also be issued as shares or through property ownership.

When considering an investment in a company, it's essential to examine the consistent growth of both earnings and dividends distributed to shareholders.

Dividend Yield measures the dividend received concerning the share price. Dividends are usually paid based on the face value of a company's shares. The formula for calculating the dividend yield is:

Annual dividends per share / Price Per Share

As a result, when evaluating the return on capital using the dividend yield, it's crucial to focus on the actual return or dividend yield.

For instance, if a company declares a 40% dividend, and the share price is Rs 150, the dividend yield is calculated as (4/150*10)*100= 26.67%.

Therefore, the dividend yield for the investor is 26.67%, not 40%, as they did not purchase the share at the face value of Rs 10.

Article Date: March 8, 2016