The dividend yield ratio shows the percentage return to investors on the market value of the preference or ordinary shares that they own. Like the dividend coverage ratio, this ratio is also calculated separately for each class of shares. For preference shares: For ordinary shares: The dividend is often a major part of all that a shareholder receives from a company for their investment in shares. Hence, the dividend yield ratio frequently represents a significant portion of the return going to the shareholder in the form of dividends.Formula
Dividend Yield Ratio FAQs
The dividend yield ratio is a financial metric used to assess the relative attractiveness of an investment. It is calculated by dividing the annual dividend per share by the current share price.
The dividend yield ratio can be used to compare the relative attractiveness of different investments. It can also be used to asses whether a stock is undervalued or overvalued.
Some factors that can impact the dividend yield ratio include the company's earnings, dividends paid out, and share price. The overall market conditions can also impact the dividend yield ratio. For example, when interest rates are low, the dividend yield ratio will tend to be higher.
High dividend yields can be indicative of a company that is in financial distress and may not be able to sustain its dividend payments. There is also the risk that the company may cut its dividend in the future, which would impact the investment's return.
High dividend yields can provide a source of income for investors, as well as the potential for capital appreciation if the share price increases. Dividend-paying stocks can also act as a hedge against inflation.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
