Dividend yield

Category:Metrics
Alternative names: dividend-price ratio

What is dividend yield

Dividend yield is the amount of dividend that a company pays (on an annual basis) expressed as a ratio compared to the company current stock price. It is expressed as a percentage and indicates attractiveness of investing in a company’s stocks purely based on dividend return and its important ratio for income type investors.

How to calculate dividend yield (formula)

Dividend yield is calculated by dividing the annual dividend per share amount that the company pays by the current value of the company share. The formula:

Dividend Yield Ratio = Annual Dividend per Share / Market Value per Share

From the formula it follows that the dividend yield will be inversely correlated with the stock price. So, assuming the dividend per share is not increased to lowered, when the stock price on a company is rising the dividend yield will fall and inversely when the stock price is falling the dividend yield will be rising.

What is a good dividend yield number

Since dividend yield is the amount that a company is paying back to investors it makes sense that the higher the number the better for the individual investors. There are some caveats to that though. First when investing in stock for the dividend yield the investor has to be aware on the sustainability and predictability on the dividend being paid in the future. For this the investors should pay attention to he dividend payout ratio and the dividend payments history of the company as well as the overall future prospects of the business.

Stocks with high dividend yield

Name Dividend yield Marketcap Industry
USAC USA Compression Partners LP 14.04% $1.45B Oil & Gas Equipment & Services
SHLX Shell Midstream Partners LP 13.43% $4.45B Oil & Gas Midstream
EARN Ellington Residential Mortgage REIT 12.94% $135.95M REIT - Mortgage
CHMI Cherry Hill Mortgage Investment Corp 12.69% $152.38M REIT - Mortgage
MSB Mesabi Trust 12.48% $300.71M Steel

Why is dividend yield important

Paying a divided is one of the direct ways a company can returns funds to the investors. So if you are investing in a stock for the income and are seeking consistent returns every year, the dividend yield will show you how much you are earning for each dollar invested in the company (at the specific stock price). Consistent dividend paying companies are usually older and more mature businesses usually from sectors like utilities or consumer staples. New and relatively small and still growing businesses usually don’t pay dividend or if they do its a lower percentage of their earnings as they are better of investing those funds in spring the businesses.

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