What is the dividend yield?
Dividend yield is a formula that shows how many companies are paid in dividends compared to its market price. In most cases, this formula is based on an annual dividend. Dividend yield helps to determine which shares are attractive to investors who prefer to make money through dividends. Investors can buy multiple shares of shares if it has a lower price but a higher yield of annual dividend payments.
If you want to find out what the dividend yield will be, it is necessary to determine first what the dividend is. Most companies announce dividends quarterly, so it may be necessary to add them to determine the price during the year. Once the annual dividend payout is known, this number is divided by the price of shares. For example, if the annual dividend yield is $ 10 (USD) and dividend is $ 1, the yield is 10 percent. The yield, which is this maximum, is very good and very few shares overcome it, but in some cases can bring up to 20 percent.
Price/divide ratioND is very important to some investors, but not for all. If investors try to make money from dividends, rather than simply trading, then $ 10 with Dividend 1 USD is much more attractive than $ 20 with a $ 1 dividend return, because the ratio with the latter shares is only five percent. This is because for money you can buy twice as many shares for the same amount of dividend income.
Although not all investors focus on dividend yield as a money -making business, it can help determine how healthy and profitable is a corporation. A high dividend yield often suggests that the company earns considerable profit per share, but is not the only indicator. Some companies that have multiple shares issued may have lower yields, but they could still be very healthy. Therefore, it is important to take into account all the circumstances.
yield is also one way to identify trends. If the ratio continues to rise, then there is a good possibility that the company continuesgood. The opposite may also be true if the yield decreases. At the same time, the ratio could decrease for other reasons, such as further issuance of shares. Investors should research all possible explanations before making a firm conclusion based on a dividend yield.