This document discusses dividend yield, which is a financial ratio that measures how much a company pays out in annual dividends relative to its stock price. It is calculated by dividing the annual dividend per share by the stock price. A higher dividend yield suggests the stock may be a better investment for investors seeking dividend income. However, relying solely on dividend yield can be misleading, as a very high yield may indicate financial troubles have lowered the stock price. The document provides an example calculation and compares the dividend yields of two companies, concluding that the company with the higher and more stable dividend yield, 25%, may be the better investment choice.

1. DIVIDEND YIELD
BY :- PARMOD , KAPIL

2. • A Dividend is a payment made by a company
to its shareholders, usually as a distribution of
profits. When a company earns a profit or
surplus , it can either re-invest it on the
business (called retained earnings), or it can
distribute it to shareholders.

3. INTRODUCTION
• The Dividend Yield is the dividend per share, divided
by the market price per share.
• A financial ratio that shows how much a company
pays out in dividends each year relative to its share
price.
• It is often expressed as a percentage.
• Dividend yield is also known as Dividend-Price Ratio.
• Dividend yield = Dividend per share/ Market Price per
share.

4. SIGNIFICANCE & INTERPRETATIONS
• Dividend yield is used to calculate the earning on
investment (shares) considering only the returns
in the form of total dividends declared by the
company during the year.
• The ratio is important for those investors who
purchase shares to earn dividend income. Also
the shares that earn higher dividend income can
be sold in the market at market at higher prices
that usually results in higher profits for the
investor.

5. • Depending solely on dividend yield figure for
making investment in a company may not be a
wise decision. A high dividend yield
percentage may be due to a recent decrease
in the market price of the stock of the
company due to sever financial troubles. It
may have to reduce the price of shares in
future that may further reduce the market
value of its stock. Therefore, a company with
attractive dividend yield figure may not always
be the best option.

6. • For Example :• If market price of a share = $ 100.
Dividend during the year = $ 20.
Dividend Yield = 20/100*100 = 20%.
• If market price of a share = $ 80.
Dividend during the year = $ 20.
Dividend Yield = 20/80*100 = 25%.

7. Example – Comparison of two companies:
The following information is related to PQR & XYZ company for the year 2013 :PQR company
XYZ company
Cash dividend declared and
paid during the year
$7,50,000
$1,24,800
Common Stock
$25,00,000
$12,00,000
Number of shares of
common stock
50,000
24,000
Par value of a share
$50
$50
Market value of a share
$60
$52

8. • Both the company belong to same industry. PQR is an old and well
established company where a XYZ company. The historical data shows that
the PQR has a stable annual dividend distribution to stock holders.
• Required : calculate dividend yield ratio of both the companies. Which
company would be recommend for investment in shares ?
PQR Company
Dividend yield ratio
$7,50,000/50,000
$1,24,800/24,000
=$15
Dividend per share
XYZ Company
=$5.20
($15/$60) x 100
($5.2/$52) x 100
= 25%
= !0%

9. Thank You
