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Saturday, September 18, 2010

How to Calculate Dividend Yield?

Not all of the tools of fundamental analysis work for every investor on every stock. If you are a value investor or looking for dividend income then there are a couple of measurements that are specific to you. For dividend investors, one of the telling metrics is Dividend Yield.

This measurement tells you what percentage return a company pays out to shareholders in the form of dividends. Older, well-established companies tend to payout a higher percentage then do younger companies and their dividend history can be more consistent.

You calculate the Dividend Yield by taking the annual dividend per share and divide by the stock’s price.

Dividend Yield = Annual dividend per share / Stock's price per share

For example, if a company’s annual dividend is Rs. 1.50 and the stock trades at Rs. 25, the Dividend Yield is 6%. (Rs. 1.50 / Rs. 25 = 0.06)

Dividend usually declared by the companies in % terms to the face value of the share. For Example, Company trading at Rs. 50 with a face value of Rs. 10 per share declares 10% dividend. That means company will pay dividend of Rs. 1 per share to its share holders. Hence in such a case, Dividend Yield is 2% (Rs. 1 / Rs. 50 = 0.02)