Dividend Yield Calculator
Investing in the stock market is a unique prospect that has the potential to change an investor’s life. Share market investing has been the centre of attraction for Indians for a while now. Investing in a business that can grow in the coming years presents an exciting opportunity for stock market investors. While rising stock prices can help you grow your investment, there is another lucrative benefit that you get in addition. This is known as Dividends.
A dividend is a portion or share of the company’s profits that is distributed amongst its shareholders. As a shareholder, you can not only enjoy growth with rising share prices of your invested stock but also get additional payout through dividends. A shareholder is a part owner of the company and thus a recipient of their profits as well. Established companies distribute dividends periodically. Such companies attract investors like no other, as they provide a unique opportunity to grow your capital in multiple ways.
What is Dividend Yield?
The dividend yield is calculated in terms of percentage. A dividend yield simply means the percentage of profit the company is distributing to its shareholders against their investments. The dividend yield is a ratio of the dividend per share or DPS, divided by the market price of the share. If a company has a dividend yield of 5%, it means that it if the share price is Rs.100, it pays a dividend of Rs. 5 per share.
The dividend yield is usually higher for mature companies, whose share prices have grown significantly in the market. The upside potential of their share prices is not that significant after a certain point, and they devise dividends to distribute profits and incentivise investors.
How to calculate dividend yield using a dividend yield calculator?
The method of calculating dividend yields is simple. There are two components involved in its calculation, Dividend per share or DPS, divided by its current stock price.
Dividend Yield = Current Annual Dividend Per Share / Current Price of the Stock
To understand it with an example, let us say that the current annual dividend per share is Rs. 6 and the current market price of the shares is Rs. 120 per share. The dividend yield, in this case, would be:
Dividend Yield = 6/120 = 5%.
How to interpret the dividend yield calculator?
The dividend yield calculator can give you a picture of the dividend returns that you can enjoy on your favourite stock. Some investors use the dividend yield calculator to screen stocks for investment as well. However, the interpretation of dividend yield is another attribute that you should understand before you consider it a parameter to choose stocks for investment.
- It’s important for one to familiarize oneself with the dividend yield trap when the stock price falls faster than the earnings. You need to be careful about it. In due course, companies are forced to cut dividends due to this, and then the entire dividend story unravels.
- While comparing two utility stocks, ensure that the sectors are similar. For instance, you can’t compare a utility and an e-commerce company when you compare dividend.
- At the time of checking the dividend yields, you must also consider the pay-out ratio analysis. This ratio is nothing but the amount of a company’s net income that goes towards dividends. Usually, a company’s payout ratio should be examined basis on the nature of the industry. Still, markets tend to prefer high dividend yield stocks because it’s an indication that the company has the cash to pay out.
How do you calculate dividend payout?
Dividend payout is essentially the percentage of profit that the company distributes as dividends compared to its total income.
Investors usually calculate the dividend payout ratio to gauge an estimation of how much a company pays to its investors as dividends and how much it keeps for reinvesting and debt repayment. Simply put, the dividend payout ratio (DPR) is the dividend paid against net income.
DPR is calculated by investors basis of this formula.
DPR = DP/NI
DP = Dividend Paid
NI = Net Income
What is a good dividend yield for a stock?
A good dividend will depend on various factors. The most important of these factors is the sector. The dividend yield for various sectors may be different. Other critical factors that contribute to dividend yield are market conditions and the current price of shares. If a company is relatively new to the market it would want to reinvest more in its organisational growth rather than paying high dividends. This does not make them a bad investment choice as this may result in share price appreciation in future.
Frequently Asked Questions (FAQs)
A good dividend yield depends on various factors. Dividend yield benchmarks for different sectors can be different. It is important to analyse this before investing.
No, the dividend yield cannot be negative. As the share prices and the dividend per share cannot be negative the dividend yield percentage cannot be negative.
A dividend is a portion or share of a company’s profits that are distributed amongst its shareholders.
Dividend payout is essentially the percentage of profit that the company distributes as dividends compared to its net income.
Dividend Payout = Profit distributed as dividends/net income
A good dividend yield depends on various factors. Dividend yield benchmarks for different sectors can be different. It is important to analyse this before investing.
Dividend Yield = Current Annual Dividend Per Share / Current Price of the Stock
To find the dividend yield, you need to calculate the annual dividends. Keep in mind that for companies that distribute dividends multiple times a year, you need to calculate their annual dividend by multiplying the dividend per period by the total number of times dividends are shared
There is no specific count or limit on the number of times dividends can be distributed in a year. Some companies pay quarterly, some semi-annually while some pay at irregular intervals.