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Dividend Yield Calculator

One of the chief reasons for people buying shares is to earn a steady income in the form of dividends. Well-established companies pay dividends on a regular basis to their shareholders. Whenever firms make a profit, a part of it is distributed to the shareholders, who are part-owners of the company. Investors in dividend-paying stocks look for those with a high dividend yield. You can use a dividend yield calculator to find out if a stock is suitable for your needs or not.

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What is the dividend yield?

You may have heard of earning per share (EPS). It is the earnings (profit) of a company divided by the number of shares outstanding. The dividend yield is akin to EPS and equals annual dividends paid out by the company divided by its market cap. It is also called the dividend-price ratio, or dividend per share divided by price per share. A dividend yield calculator online can help you find out which share is the best when it comes to dividends.

Here’s an example of dividend yield. Let’s say you have invested in scrip that pays out dividends of Rs 10, while its share price is Rs 100. In this case, the dividend yield would be 10/100, or 10 per cent.

So to find out the yield, just enter the stock price, the frequency of the dividend (monthly, quarterly, yearly) and the dividend amount per share into the dividend yield calculator.

Making sense of dividend yield calculator results

When you use your dividend yield calculator, you might feel elated on discovering that your favourite stock has a very high dividend yield. But do not get carried away. You don’t want to invest in a company that distributes a very large chunk of its profits instead of investing in future growth.

Another thing to remember while using the dividend yield calculator is, some of the more well-run firms may focus on increasing share prices instead of dividends. So if you just focus on dividends, you could lose out on price appreciation.

Finding out dividend yield is certainly important. But, while using your dividend yield ratio calculator, you must not lose sight of various other considerations that affect a company’s fortunes – like the quality of its management, whether it is growth-oriented or not, if it is in an industry with potential for growth and so on.

Certainly looking at dividend yield has its limitations. But it can be helpful. Remember that through the power of compounding, dividends -- over the years -- can result in huge capital appreciation.       

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