Dividend Yield

Investments

Dividend yield is the annual dividend per share divided by the current share price, expressed as a percentage. It measures the income return from a stock relative to its current market price.

In detail

Dividend yield = Annual dividend per share / Current market price x 100nnA 5% dividend yield on a Rs 500 stock means Rs 25 annual dividend per share. Dividend yield moves inversely with price -- if price falls and dividend stays constant, yield rises.nnHigh dividend yield stocks: PSU banks, coal/oil companies, utilities. Low yield but high growth: technology companies that retain earnings.nnTax: dividends received in hands of investor taxed at slab rate (no DDT from FY 2021).

Formula

Dividend Yield = Annual Dividend per Share / Current Share Price x 100nDividend Payout Ratio = Dividends paid / Net profit x 100

Real-life example

🇮🇳 India example

Coal India: dividend Rs 25/share, stock price Rs 400. Dividend yield = 6.25%. Rs 1L invested at this price would receive Rs 6,250/year in dividends, taxable at slab. For a 30% bracket investor: Rs 4,375 post-tax annual income from dividends.

Frequently asked questions

Is high dividend yield always good? ▼

Not necessarily. A very high yield (above 8-10%) often signals the stock price has fallen due to business problems, pushing yield up artificially. Called a dividend trap -- the company may cut dividends soon. Sustainable dividend growth (5-7% yield with growing dividends) is more valuable than a temporarily high yield.