The dividend yield, also known as current yield, is a measure of an investment’s return. The higher the dividend yield, the higher the return on the investment. Typically, only profitable companies pay out dividends; therefore, investors often view companies that have paid out significant dividends in the past are considered as a less risky investment. Because of their consistent profit.
Formula for Dividend Yield / Current Yield
\(Dividend\,Yield/\,Current\,Yield = \frac{{Dividend\,per\,share}}{{Price\,per\,share}}\)
Example
ABC Company has paid out a dividend per share in the amount of Rs.15 and has a share price at the end of the year in the amount of Rs.1125 per share. This gives a dividend yield in the amount of 1.33%, which means that the investor has earned 1.33% return if he has paid Rs.1125 for each share purchased.
Dividend payout ratio can also be calculated by dividing dividends with net income.
