dividend yield

(noun)

A company's total annual dividend payment per share, divided by its price per share.

Related Terms

Examples of dividend yield in the following topics:

  • Dividend Yield Ratio

    • Preferred share dividend yield is the dividend payments on preferred shares, which are set out in the prospectus.
    • Its dividend yield would be calculated as follows: 1/20 = 0.05 = 5%.
    • Others try to estimate the next year's dividend and use it to derive a prospective dividend yield.
    • Estimates of future dividend yields are by definition uncertain.
    • Current dividend yield = Most recent Full-Year Dividend / Current Share Price

  • Value of a High Dividend

    • A high-yield stock is generally considered as a stock whose dividend yield is higher than the yield of any benchmark average such as the 10 year U.S.
    • There is no set standard for judging whether a dividend yield is high or low.
    • High dividend yields are particularly sought after by income and value investors.
    • High-yield stocks tend to outperform low yield and no yield stocks during bear markets because many investors consider dividend paying stocks to be less risky.
    • But not all firms offering high dividend yields are steady, reliable investments.

  • Value of a Low Dividend

    • The conflicting theories on dividend policy complicate interpretations of low dividends in real life.
    • If a stock has a low dividend yield, this implies that the stock's market price is considerably higher than the dividend payments a shareholder gets from owning the stock.
    • A history of low or falling yields may indicate that the firm's cash situation is not stable.
    • Conversely, a low dividend yield can be considered evidence that the firm is experiencing rapid growth or that future dividends might be higher.
    • Investors who prefer a "growth investment" strategy may prefer a stock with low to no dividend yields, as that is one of several indicators for a firm experiencing quick growth.

  • Expected Dividends, No Growth

    • A no-growth company would be expected to return high dividends under traditional finance theory.
    • This suggests that a particular pattern of dividend payments may suit one type of stock holder more than another; this is sometimes called the "clientele effect. " A retiree may prefer to invest in a firm that provides a consistently high dividend yield, whereas a person with a high income from employment may prefer to avoid dividends due to their high marginal tax rate on income.
    • No growth, high dividend stocks may appeal to value investors.
    • As examples, such securities may be stock in public companies that have high dividend yields, low price-to-earning multiples, or have low price-to-book ratios.
    • Describe how a company should make a dividend decision when it expect no growth

  • Discounted Dividend vs. Corporate Valuation

    • The dividend discount model values a firm at the discounted sum of all of its future dividends, and does not factor in income or assets.
    • The dividend discount model (DDM) is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments.
    • There is no reason to use a calculation of next year's dividend using the current dividend and the growth rate, when management commonly disclose the future year's dividend, and websites post it.
    • The equation can also be understood to generate the value of a stock such that the sum of its dividend yield (income) plus its growth (capital gains) equals the investor's required total return.
    • b) If the stock does not currently pay a dividend, like many growth stocks, more general versions of the discounted dividend model must be used to value the stock.

  • Dividend Reinvestments

    • Dividend reinvestment plans (DRIPs) automatically reinvest cash dividends in the stock.
    • The shareholder chooses to not receive dividends directly as cash; instead, the shareholder's dividends are directly reinvested in the underlying equity.
    • This is called a dividend reinvestment program or dividend reinvestment plan (DRIP).
    • Not only is the investor guaranteed the return of whatever the dividend yield is, but s/he may also earn whatever the stock appreciates to during his or her time of ownership.
    • The name "DRIP" is generally associated with programs run by the dividend-paying company.

  • Dividend Irrelevance Theory

    • Dividend irrelevance follows from this capital structure irrelevance.
    • However, the total return from both dividends and capital gains to stockholders should be the same.
    • If dividends are too small, a stockholder can simply choose to sell some portion of his stock.
    • Since the publication of the papers by Modigliani and Miller, numerous studies have shown that it does not make any difference to the wealth of shareholders whether a company has a high dividend yield or if a company uses its earnings to reinvest in the company and achieves higher growth.
    • However, the importance of a firm's dividend decision is still contested, with a number of theories arguing for dividend relevance.

  • Defining Dividends

    • A dividend is allocated as a fixed amount per share.
    • When it is time to make dividend payments, corporations always pay preferred stock owners first, and then common stock dividends are allocated after all preferred dividends are paid in full.
    • Dividend yield refers the ratio between dividends per share and the market price of each share, and it is expressed in terms of percentage.
    • Dividends may be allocated in different forms of payment, outlined below:Cash dividends are the most common.
    • In-dividend date is the last day, which is one trading day before the ex-dividend date, where the stock is said to be cum dividend ('with [including] dividend').

  • Dividend Payments and Earnings Retention

    • A dividend is allocated as a fixed amount per share.
    • Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a "special dividend" to distinguish it from the fixed schedule dividends.
    • They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield five extra shares).
    • Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends:
    • The dividend payout ratio is equal to dividend payments divided by net income for the same period.

  • Methods of Paying Dividends

    • A dividend is allocated as a fixed amount per share.
    • For example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 extra shares.
    • Interim dividends are dividend payments made before a company's annual general meeting and final financial statements.
    • Other dividends can be used in structured finance.
    • Classify the different types of dividends based on method of payment