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What is Dividend Yield?

Dividend Yield is a financial ratio that indicates how much a company pays out in dividends annually relative to its stock price. It measures the cash dividend paid to shareholders compared to the market price of the share.

By Ajay AjithPublished 18 Aug 2020Updated 23 Jul 20261 min read

Key takeaways

Dividend Yield is a financial ratio that tells how much a company pays out in dividends each year in comparison to its stock price.
It measures the cash dividend paid out to the shareholders relative to the market price of the share.
Mature companies are the most likely to pay dividends.
Higher the dividend yield, better it is for the shareholder.

Dividend Yield is a financial ratio that tells how much a company pays out in dividends each year in comparison to its stock price. It measures the cash dividend paid out to the shareholders relative to the market price of the share.

Understand Dividend Yield

Company has shareholders whose primary interest to earn income, either in the form of capital appreciation or dividends. Thus, to keep its shareholders happy, the company tends to pay dividends to its shareholders. This dividend is generally paid from the portion of profit which the company earns. The rest of the amount left which is not distributed goes into the retained earnings. Mature companies are the most likely to pay dividends.

Thus, it is a metric which tells about how much the shareholders are earning from their investment in a certain company. Higher the dividend yield, better it is for the shareholder.

Example

Suppose a company ABC has a stock price of Rs. 100 and announces a dividend of Rs. 5. Then dividend yield would be,

Dividend Yield = Cash Dividend per share / Market Price per share * 100