What is Dividend Yield?
Contents
✅ In Simple Words:
Dividend Yield tells you how much money a company gives you back (as dividend) for every ₹100 invested in its stock.
It’s like interest you earn from your shares — just like earning interest from a bank FD.
🧮 Formula:
Dividend Yield = (Dividend per Share ÷ Market Price per Share) × 100
🏪 Example:
Let’s say:
- A company gives ₹5 dividend per share in a year.
- The current market price of the stock is ₹100.
Dividend Yield = (₹5 ÷ ₹100) × 100 = 5%
👉 This means, if you invest ₹1 lakh in this stock, you earn ₹5,000 per year as passive income.
✅ High Dividend Yield = Good?
- Yes, if the company is stable and has consistent profits.
- No, if the share price has fallen due to poor performance (sometimes yield looks high for wrong reasons).
📘 2. What is Dividend Payout Ratio?
✅ In Simple Words:
The dividend payout ratio tells you how much of the company’s profit is being shared with shareholders as dividends.
The rest is kept by the company for growth, expansion, or reserves.
🧮 Formula:
Dividend Payout Ratio = (Dividend per Share ÷ Earnings per Share) × 100
Or
Payout Ratio = (Total Dividend Paid ÷ Net Profit) × 100
🏪 Example:
Let’s say:
- A company earned ₹10 per share in profit (EPS).
- It gave ₹4 per share as dividend.
Dividend Payout Ratio = (₹4 ÷ ₹10) × 100 = 40%
👉 This means the company kept 60% of its profit and gave 40% to shareholders.
✅ High Payout vs Low Payout:
| Type | Meaning | Example Type of Companies |
|---|---|---|
| High Payout | Company shares most of its profits, less focus on growth | Mature firms like Hindustan Unilever, Coal India |
| Low Payout | Company reinvests profits to grow | Growing firms like Infosys, Tata Elxsi |
📊 Summary Table:
| Term | What It Shows | Good If… |
|---|---|---|
| Dividend Yield | Return on your investment as cash income | You want passive income |
| Payout Ratio | How much of profits are given as dividends | You want steady cash + safety |
💡 Final Tip:
- If you want regular income → Look for high dividend yield + high payout.
- If you want growth in your investment → Look for low payout, but high growth companies.
