Dividend Yield - How to Calculate Dividend Yield | Investing 101 | Edelweiss Wealth Management
In this video, we will look at the difference between dividend and dividend yield. We will also see how to calculate dividend yield using the dividend yield formula, and how to evaluate the performance of a company using dividend yield.
What is dividend?
Dividend is the measure of an investment's productive capacity. Basically, it is how much return an investor can get by investing in one share of a company.
Investors however view the company's performance by the dividend yield which basically measures the dividend in terms of a percent of the current market price. The dividend yield is a financial ratio of the aggregate dividend a company pays each year, relative to it's share price.
How to calculate dividend yield?
Dividend Yield: Annual Dividend per Share / Market Price per Share
Note: Dividend yield is usually calculated in terms of percentage.
However it is important to note that, investing in a company that offers you high dividend yield isn't always the best option because of the below two reasons:
1. Stocks with lower growth potential often offer a high dividend yield percentage to it's investors with an aim to attract additional investments.
2. Stocks with high growth potential usually offer low dividend yield percentage to it's investors because the are bound to grow in the long run.
Hence, while choosing a stock to invest in, it is very important that you do not choose dividend yield as the only deciding parameter. You should consider multiple other factors like CAGR, stock split, return on capital employed etc. before investing your hard earned money.
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