The dividend yield (also known as dividend price ratio) on a company stock is the annual dividend payments of that company which is divided by its market cap or the dividend on each share divided by the price per share. It is generally expressed in the terms of a percentage. The Price::Dividend ratio is its reciprocal.
Dividend yield is a very important concept in investing as it informs you how much an organization pays out in dividends which is comparative to the price of its shares. Information about the dividend yield of your shares will help you understand the cash flow which you are getting from them. Computing dividend yield is easy and here in this article, you will easily learn in just few steps how to calculate dividend yield.
Steps for calculation
Step 1.
The first information which you will need is the price of the stock of the company. This information can be found on the net easily. Enter the ticker symbol of your stock at the top of the page or you can search for the name of the company. Once you get it then search for the words ‘Last Trade’. This term stands for the price which the stock is presently fetching. For instance let us assume that at this time Microsoft stock (MSFT) is trading at $ 28.23.
Step 2.
Now in 2nd step, you need to know what the dividend payment is. You can also find it on Yahoo! Finance under the section ‘Div & Yield’. For instance, dividend of Microsoft is $ 0.44 or 44 cents per share of stock now.
Step 3.
Now, to determine the dividend yield, you have to divide the dividends per share by the cost per share. In this example it will be $ 0.44 by $ 28.23. This will result as 0.01558. Now you have to adjust the decimal point two places to the right and then you will get 1.6 %.
Step 4.
To understand the number you get as the result, always remember that stocks with dividend yields which is more than 4% are usually considered as ‘high dividend payers’ but dividend yield depends upon many factors and it is surely not the only decisive factor which you should use in investing.
Whenever you make investments in share market, it is necessary to have a keen look at some factors like dividend yield of the share of that company for which you are going to make investment. It is easy to calculate dividend yield and you should know how to calculate it. I hope this article would have proved helpful in the context to learn how to calculate dividend yield to you.
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