Dividend yield
Dividend yield is the yearly dividend a company pays per share, shown as a percentage of the current share price.
Dividend yield = (Annual dividend per share ÷ Share price) × 100
What it is
When a company pays part of its profit to shareholders in cash, that is a dividend. Dividend yield tells you how much cash income you would get each year, compared with what the share costs today.
It works like the interest rate on a deposit, with one big difference: dividends are not promised. The company can raise, cut or stop them.
How to read it
Because the yield uses the share price, it moves when the price moves. If the price falls and the dividend stays the same, the yield goes up.
Look at the payout ratio too: dividend per share ÷ EPS. A company paying out most of its profit may struggle to keep the dividend if profit dips. A company paying a modest share of a steadily growing profit is more likely to keep paying, and raising, its dividend.
The high-yield trap
A very high yield often appears because the share price has fallen sharply, and the price fell because the market expects trouble. The next dividend may be much smaller.
Also check whether last year’s dividend was a one-off special payout. Using a one-time dividend makes the yield look far better than what you can expect each year.
Calculating dividend yield
A share trades at ₹250 and the company paid dividends of ₹10 per share over the last year. Dividend yield = ₹10 ÷ ₹250 × 100 = 4%. If the price falls to ₹200 and the dividend stays ₹10, the yield rises to 5%, but only because the price dropped.
Common mistakes
- Buying for a high yield without asking why the price fell.
- Counting a one-time special dividend as regular income.
- Ignoring the payout ratio and whether profit can support the dividend.
- Confusing a dividend declared as a % of face value with the dividend yield.
A ₹10 face value share trades at ₹500. The company declares a 100% dividend. What is the dividend yield?
- 2%
- 100%
- 10%
Show the answer
2%. A 100% dividend on ₹10 face value is ₹10 per share. ₹10 ÷ ₹500 × 100 = 2%. The “100%” refers to face value, not the share price.
Common questions
What is a good dividend yield?
It depends on the company and the sector. A steady, well-covered dividend matters more than a high number. Very high yields are often a sign of risk.
Why does dividend yield go up when the share price falls?
The yield is dividend ÷ price. If the price falls and the dividend does not change, the same rupee amount is a bigger share of a smaller price.
Are dividends guaranteed?
No. The board decides each dividend, and it can be cut or skipped if profit or cash falls.
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