Dividend and Dividend yield

What is ‘dividend’?

Dividend is the regular distribution of company’s profit payment to the shareholders, decided by board of directors.  Companies pay dividends as cash.

In other words dividends are the fixed earnings from the investment.  Investors make money from market in this two ways, from capital gains and dividends.  Capital gains refers to increase in the market price of the share.  However companies pay very less percentage in dividends, but capital gain is very high.

However these are non taxable income for shareholders. Usually companies pay dividends twice a year.  Importantly dividends depend on face value of the share, not dependent on current market price, but dividend yield is dependent on current market price.

Usually well eastablished, large companies will give dividends regularly,  Start-up companies,  companies running in loss and companies which reused their profit for business expansion  won’t give dividends.

All though most of the investor prefer dividends paying companies more compared to non dividends paying companies. For long term investors dividends are the only source of income, since they wont get capital gains till they sell the shares.

These are taxable with respect to the amount and based on the country. In India companies pay corporate dividends tax and shareholders should pay 10% if the dividends amount is more than ₹1,000,000.

Dividend yield (%)

Dividend yield is the percentage of the dividend in cash to the current market price. Usually dividend yield is percentage (%).  This value will change with respect to current market price of the share.

Dividend cycle

This is the frequency of the dividend payment in a financial year.  Usually companies pay dividends twice an year.  Although it is dependent on financial conditions of the company and deception of the board of directors.

Example:

Consider Yes bank paying 2.7 per share, current market price of yes bank is 250 and face value is 2

Therefore,

Dividend is 135% = (2.7 / 2) * 100

Dividend yield is 1.08 % = ( 2.7 / 250 ) * 100

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