Dividend yield value of a stock is one of the prime indicators of its earning potential. In this article, you will find a clear explanation of dividend yield calculation, from the knowledge of dividends per share and current share price. Also provided, is a calculator which can directly compute dividend yield for you.
The inherent value of a stock and its future potential can only be determined by studying the fundamentals of the holding company. It’s therefore essential that every stock investor be well versed in the art of security analysis. Among the many financial parameters that come under the scanner while studying a stock’s performance, one of the most important is ‘Dividend Yield’. Ergo, it’s essential that a beginner stock investor knows how to calculate dividend yield. That’s exactly what is discussed in this WealthHow article, which also offers a ready-to-use online dividend yield calculator, which you can use right away. Those among you, who are clueless about what dividend yield is and its calculation procedure are advised to keep reading ahead.
What is Dividend Yield?
Many public listed companies offer a share of their annual profits in to their shareholders. The share of profits received is known as a ‘Dividend’. Depending on the quarterly profits of every company, its dividend value varies. Also, subject to company performance and market whims, its stock price rises and falls on the stock market. A dividend yield value correlates the company’s annual dividend paid per share with its current stock price. In fact, when you divide the annual dividend per share, by its current stock price, what you are left with, is the dividend yield. Here is the formula used for dividend yield calculation.
Dividend Yield = (Annual Dividend Value Per Share) / (Current Stock Price Per Share)
Dividend yield is a ratio is often expressed in percentage. The higher the value of the annual dividend, more profitable will be the acquisition of the stock.
Dividend Yield Calculation
From the company financial records offered online, you can compute the value of dividend yield, if you know the current stock trading price and the annual dividend value per share. Let me illustrate the calculation, through an example. This ratio offers you a direct measurement of the return on investment, which you might expect through purchasing of the stock.
Consider that a stock is trading at a value of $25 and it yields an annual dividend of $4 per share, then what would its dividend yield be? Using the calculator presented above, the answer can be easily computed. In this case the result would be as follows:
Dividend Yield = ($4/$25) = 0.16
This value means that 16% of your money invested in buying the share would be eventually recovered through dividends. If you find an actual stock which can provide a 16% dividend yield, I would recommend that you buy it. However, the yield rarely tends to be this high and is usually less than 10%. Using the calculator provided above, you can easily computer the dividend yield value for any stock. Visit any one of the online services which provide live stock data. My suggestion would be that you use Google Finance site, which offers complete information about any stock trading on NYSE, NASDAQ and AMEX.
As you might have already realized, computing the dividend yield value is a simple task, once you know the annual dividend share value and the price at which the stock is currently trading. Companies that have been in business for long and especially blue chip companies like Google or Microsoft will always have a greater dividend yield percentage, compared to others.
Stocks with rich dividend yields are investments that can provide you with a high return on investment in the future. Consider all the factors which determine the value of a stock like earnings per share, company’s P/E ratio, debt to equity ratio, past revenue records and other factors in totality, before deciding to make a share purchase.