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Dividend Yield

Updated on March 1, 2023

Dividend yield is the ratio of dividend paid by a company to its shareholders divided by the stock’s existing market price. It is displayed as a percentage. Some analysts and experts use Dividend yield as a means to compare stocks and also for share price valuation. Some investors prefer companies which have a high dividend yield. This is because consistent and high dividend yield is associated with regular income, stability and security even when markets are down.

Dividend Yield Explained

Dividend is paid out to shareholders from a company’s own profits. Dividend Yield gives the ratio of dividend paid by a company as compared to its stock price. It helps in evaluating companies which pay more in terms of dividends as compared to the investor’s investment in a company/share.
Dividend Yield = Dividend paid per share (annual)/Price per share

Importance of Dividend Yield

Importance of Dividend Yield
1. Growing year-on year dividend yield is an indicator of a company’s stability
2. Dividend yield is used to compare companies
3. High dividend yield would also mean that the company is not investing in its growth/expansion/diversification