Question 1

What is dividend yield?

Accepted Answer

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's calculated as (Annual Dividend per Share ÷ Stock Price) × 100. For example, if a stock costs $100 and pays $4 in annual dividends, the dividend yield is 4%.

Question 2

How do you calculate dividend yield?

Accepted Answer

Dividend yield is calculated using the formula: Dividend Yield = (Annual Dividend per Share ÷ Stock Price) × 100. For example, if a stock is trading at $50 and pays $2.50 in annual dividends, the dividend yield is (2.50 ÷ 50) × 100 = 5%. This tells you the percentage return you'll receive from dividends alone.

Question 3

What is a good dividend yield?

Accepted Answer

A good dividend yield depends on your investment goals and risk tolerance. Generally: 1-2% is low (growth stocks), 2-4% is average (blue-chip stocks), 4-6% is above average (dividend stocks), and 6%+ is high yield (may indicate higher risk). Consider the company's financial health, dividend history, and growth prospects alongside yield.

Question 4

How does dividend yield affect stock returns?

Accepted Answer

Dividend yield is one component of total stock returns, along with capital appreciation. Total return = Dividend yield + Capital gains. High dividend yields can provide steady income but may indicate slower growth. Low yields might mean faster growth but less immediate income. Balance both for optimal returns.

Question 5

What is the difference between dividend yield and dividend per share?

Accepted Answer

Dividend per share is the actual dollar amount paid per share (e.g., $2.50 per share), while dividend yield is the percentage return (e.g., 5%). Dividend yield = (Dividend per Share ÷ Stock Price) × 100. Yield is more useful for comparing different stocks, while dividend per share shows the actual income amount.

Question 6

How often are dividends paid?

Accepted Answer

Most companies pay dividends quarterly (4 times per year), but some pay monthly, semi-annually, or annually. Quarterly payments are most common for U.S. stocks. The frequency affects your cash flow planning - quarterly dividends mean you receive income 4 times per year, while monthly dividends provide more frequent income.

Question 7

What is dividend yield on cost?

Accepted Answer

Dividend yield on cost is the dividend yield based on your original purchase price, not the current market price. If you bought a stock at $50 and it now pays $3 annually, your yield on cost is 6% even if the current yield is 4%. This shows your actual return on investment and can be much higher than current yield.

Question 8

How does dividend growth affect yield?

Accepted Answer

Dividend growth increases your effective yield over time. If a stock yields 3% but grows dividends at 8% annually, your yield on cost will increase each year. After 10 years, you might be earning 6%+ on your original investment. This is why dividend growth is often more important than initial yield for long-term investors.

Question 9

What is a sustainable dividend yield?

Accepted Answer

A sustainable dividend yield is one the company can maintain long-term. Look at the payout ratio (dividends ÷ earnings) - ideally under 60% for most companies. Also consider: dividend history, earnings growth, debt levels, and industry stability. A 2% yield from a stable company is often better than 8% from a risky one.

Question 10

How do you compare dividend yields across stocks?

Accepted Answer

Compare yields within the same industry and consider: 1) Company financial health, 2) Dividend payment history, 3) Payout ratio sustainability, 4) Growth prospects, 5) Market conditions. A utility stock yielding 4% is different from a tech stock yielding 4%. Consider total return potential, not just yield.

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