Feb 12, 2020

what does dividend yield mean

What does Dividend Yield Mean

Before understanding what is dividend Yield we must understand what is dividend then we will look for what does dividend yield means.

What is dividend:

Dividend is the amount given to the shareholders from the company's earnings, not necessarily all the companies give dividend to its shareholders its all depend on board of directors of the company, if they want to give the dividend then they reward their shareholders with dividend if they don't want to then they did not allow to distributes the reward to shareholders.

Up to 10 lakh rupees of dividend, shareholders did not need to pay the tax if dividend exceeds the 10 lakh rupees amount then tax is applicable on that amount.

Small companies and organizations rarely give a dividend to their shareholders the reason for that is obvious because they want to grow there business and hence they invest all the earnings and profit for the expansions.

Face value vs Market value of share

There are two types of share prices(Values) in the market, one is face value and the other is market value. Face value is the price of share when company issues that share in a market that price is termed as the face value. Face value did not change with the supply and demand of the share that means its the fixed value of the share but on some occasions its changes its value for example at the stock split and reconsolidation. 

Face value is used in accounting and dividend, Companies gives dividend on the face value of a share.

The market value of a share changes with supply and demand, its the current price of the share which you can buy directly on stock exchange company did not give dividend on market price.

face value dividend
Face value vs Market Value

Dividend Yield

With the help of dividend yield, we will understand, How much a company is giving dividends with respective its share market price, Dividend yield used to compare the dividends of dividend giving stocks. 

the below formula helps to calculate the dividend yield
Dividend Yield Formula
Dividend Yield formula

When the return on investment is calculated on analyze basis is called yield. This is because major amount of investment goes to bank FD with the time frame of 1year and that is considered as a benchmark for the calculation of Yield.

The compounding returns from bank FD more than actual returns from the effective rate of returns is also considered yield.

Dividend Yield
Dividend yield

it is observed and accepted in the market that, the stock can be classified on the basis of their dividend yield. The dividend yield of 2% is considered as the benchmark for the classification of stock on the basis of dividend yield.

If the dividend yield is less than 2% then the stock is considered as a growth stock.

If the dividend yield is more than 2% than stack is considered as a high dividend yield stock.


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