What is Dividend yield ratio
What is Dividend yield ratio
Dividend yield ratio is a financial term which describes how much the shareholders have received as dividend per unit share held, with respect to the current price of each share.
Dividend Yield Ratio
The profit which a company earns can be divided into 2 forms.
1. Dividends
2. Retain earnings
Dividends are treated as a reward or a gift of token which is given to the shareholders of the company from the profits earned or from the dividend reserve account of the firm. The amount to be paid as a dividend is decided by the board of directors which further requires the approval of the shareholders.
Dividend yield helps the shareholders to identify the yield that the shareholder receives on his investment in the form of a dividend, with respect to the current market price of each share. It is generally calculated by dividing the total amount of dividend received with respect to the product of numbers of shares and the current market price of each share.
Dividend Yield = Dividend / (No of shares*Current market price of each share)
A person having 50 shares in a company “X” may receive a dividend of 2000 Rs, Now if the company current share price is 100 Rs per share, the dividend yield the person has received is,
Dividend received for each share = 2000 / 50
Dividend received for every share=40 Rs per share
Dividend yield = 40/100 = 0.4 Rs of yield per share
(Or in proportion with)
Dividend yield ratio % = 40 / 100 = 4% per share
(Back calculating)
So if he has 50 shares and receives a dividend for 40Rs per share, then the total amount received as dividend is 50*40=2000 Rs
This above financial ratio helps shareholders realize their yield which they receive as dividends, on the investment made by the firm or the organization.
