Dividend Yield Ratio Definition
The dividend yield is the financial ratio which is used to measure the distribution of cash dividend amount to the common shareholder relative to market value per share. This ratio mostly investor use to find out how much cash flow will be generated by their investment in stock in the form of a dividend or how much the value of assets increases by stock appreciation.
For the return of earn by dividend or stock appreciation investor invests money in the stock. Some companies pay the dividend on regular basis for spur the interest of investor it is called income stock share. Whereas some companies not pay the dividend on regular basis and reinvest this money in business so investment in such company is called growth stock share.
Dividend yield formula is used to analyze the return on investment in stock.
Dividend yield formula can be calculated by divide the cash dividend per share by market value per share that is
Dividend Yield = Cash dividend per share/ Market value per share
From the gross dividend distributed or often from the financial statement, investors get the value of cash dividend per share. By looking at the stock exchange price as the last day of period or year, share market value can be calculated.
For the calculation of cash flow on the investment of investor in stock dividend yield formula, is used. In other words this formula mostly investors sed to find out that how much dividend they get from every dollar that the stock is worth.
A company which pays the high dividend to its investor as compared to the market value of the stock is a large dividend company. So investor prefers to invest in that company which has high dividend yield stock.
Now we take an example of the bakery which sells cup cacks and baked goods. Smaller stock exchange and current market price per share listed which is 23 Dollars per share. Bakery in dividend pays $23,000 with 1,000 shares. Dividend yield ratio for this company is
1 = 23/23
So the yield for above mention bakery is 1 it means that investor receives 1 dollar dividend for every dollar. In other words, the investor gets a 100 % dividend yield on their investment.
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