6.8What is Dividend Yield?
1What is it?
Dividend yield is the yearly dividend as a percentage of the share price.
2Why does it exist?
It shows the cash income you receive per rupee invested, useful for income-focused investors.
3Diagram
High value means…
High income, but check that it’s sustainable. A crashed price also raises yield.
Low value means…
Low income; company may be reinvesting for growth.
Is high or low good?
Moderate, sustainable yields are best. Very high yields are often a warning.
4Calculation
Dividend yield = Annual dividend per share ÷ Share price × 100
- Dividend = ₹12 a year; price = ₹400.
- Yield = 12 ÷ 400 × 100 = 3%.
3% yearly cash return from dividends.
5Risks
- Past dividends don’t guarantee future dividends.
- Ignores growth.
- Taxed at your slab.
6Practical use
Always compare a ratio with (1) the company’s own history and (2) other companies in the same industry. A single number on its own means little.
7Quick revision
- Yield = dividend ÷ price.
- Check sustainability.
- Very high yield can be a trap.
8Knowledge check
Q1. Dividend ₹5, price ₹250. Yield?Show answer
2%.
Q2. Price crashes from ₹100 to ₹50; dividend stays ₹5. Yield change?Show answer
From 5% to 10%. A warning, not necessarily a bargain.
Q3. Do growth companies usually have high yields?Show answer
No, they usually reinvest.