Dividend Yield Ratio: a passive investing tool

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Dividend Yield Ratio In a nutshell

Here´s everything you need to know about Dividend Yield Ratio. This is the simplest and most concise way I thought of explaining it to people new to investing or people shy from numbers.

What it is

 

Dividend Yield Ratio

In case dividend per share of stock is not readily presented, or you want to root out the computation yourself – this is:

 

dividends per share

Meaning

What this tells you is how much percentage return you are getting per stock you invested money on in a year´s span. If say dividend yield of a stock is 4.2% then this means annually you´ll expect to receive $ 0.042 or 4.2 cents per dollar stock you hold. You should compare the yield you get to what the market gives as a whole and also to the industry the company belongs to, to gauge how well you are being paid for your investment.

Application

This indicator is specially watched by investors and even more so by investors collecting a portfolio of high yield quality stocks as a part of their passive investment portfolio.

Use in conjunction with the firm´s business cycle. Businesses in the early stage of the business cycle will reinvest more instead of focus giving out dividends from earnings. Mature and(or) established companies will give a decent return. Keep a careful eye that they are not giving back too much because the company´s further growth prospects have reached a bottleneck. This is achieved with a quick check of the Dividend Payout Ratio of the industry the stock is engaged in. Additionally, you will instantly know if the company is diluting their equity (your share value!) if there are bigger dividends given out than what they earned for the period.

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