Dividend yield simply means the amount paid to investors by a company after considering the Stock price in the current market.
Dividend yield is a form of tracking the amount of cash flow one gets for every rupee that is invested in the position of equity. Dividend is considered as a return on stock invested whenever no gain is derived from capital.
There are two categories under which investors are placed in; growth-oriented and Value-oriented investors. Growth investors invest their capital in growing companies thus they receive returns inform of appreciation capital as the company gradually continues to grow. On the other hand investors that are value oriented are those who wait for steady returns that is in form of dividends together with appreciation of capital over long duration. Dividend value yield is very important to this type of investors.
Calculation of dividend yield ratio can be done using this formula:
Dividend Yield Ratio = Dividend per Share/Market Value per Share
A more simplified calculation; divide the dividend amount on every share with market share value to the find ratio of dividend yield. Since most of the time companies consider dividends as gross dividends distributed, it will be divide by an outstanding stock that is common in the given year. Share value in the market is considered during the close of the year.
If a company has Rs 1,000,000 cash dividend announced in a given year, the stock outstanding is 10,000.Therefore each share will have dividend as follows:
Dividend per share= Total cash dividend/Outstanding
Common Stock = 1,000,000/10,000 = 100
Therefore, dividend on each share would be Rs 100.
As seen before, dividends play a big role to investors who consider making gradual income on their investments. Dividend yield ratio provides the required production where you invested.
Companies that yield profits pay dividends thus showing a sign of there stability. This companies pay out dividends continuously when they receive a cut in the market.
Companies that have control of there liquidity position are considered to be matured ones thus they provide regular dividends. Most investors prefer this companies thus making them outstanding during crash in market.
Dividend yield ratio is among the many devices used to see and know a company’s worth before stocks are bought. Another method used to see company’s worth is the forward dividend yield ratio.
Dividend ratios are very different in many companies. IT industries are presumed to have a neglected yield in dividend. However, FMCG or PSU always have a steady yield. A notable thing is that not all companies with high turnover are worth investing in. Dividend yield becomes more attractive when the value of share in the market drops. In this scenario it’s not a good gamble to buy in the company.
In conclusion, it is very important to know that dividend yield stability is among the few indicators for stock purchasing. Other macro economical considerations should be put in place before investing.
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