Monday, May 10, 2010

Fundamental Analysis: Dividend Yield (DY)

In this post, I will share another fundamental approach towards stock investment which is the dividend yield analysis. Dividend yield measures the amount of cash return you get from the company you invested in. Dividend can be viewed as yearly interest rate for your investment in the company or you can view dividend as the profit you get according to the amount of shares you are holding.

Normally, annual interest rate for Fixed Deposit in bank is around 2.5% to 3% per year. So, if you can find a stock that is fundamentally good and produces more return than the Fixed Deposit rate of bank, why not invest in the stock to get higher return?

The dividend yield of stock can be calculated as follow:

Dividend Yield = (Dividend per share / Share price per share) x 100%


Normally, investors like to buy high dividend yield stocks such as BJTOTO, CARLSBERG, British American Tobacco (BAT) and so on and so forth. If you like high dividend, you might want to have a look at REITS, REITS provide high dividend yield and stable dividend every year.

It is important to learn the way to calculate dividend yield. Companies use two methods to declare dividends to shareholders, cents per share and percentage per share. You can refer to the tables below to earn to calculate the dividend yield:

Assuming Stock AAA is currently trading at RM 2.50 per share and it is giving RM 0.05 dividend per share.

Table 1: Cents per share
Par Value Dividends Per Share Dividend Yield
RM 1.00 RM 0.05 RM 0.05
x 100% =
2 %
RM2.50 market price per share
RM 0.50 RM 0.05 RM 0.05
x 100% =
2 %
RM2.50 market price per share
RM 0.10 RM 0.05 RM 0.05
x 100% =
2 %
RM2.50 market price per share
Now, assuming Stock AAA is currently trading at RM 2.50 per share and it is giving 2% dividend per share.

Table 2: Percentage per share
Par Value Dividends Per Share Dividend Yield
RM 1.00 2% 2% x RM 1.00 par value

x 100% =

0.8 %

RM2.50 market price per share
RM 0.50 2% 2% x RM 0.50 par value

x 100% =

0.4 %

RM2.50 market price per share
RM 0.10 2% 2% x RM 0.10 par value

x 100% =

0.08 %

RM2.50 market price per share


From the table above, I hope that you will understand how to calculate dividend yield and earn more using dividend investing approach. It is important to calculate the dividend yield and compare among different stocks to find the best and high yielding stocks for your portfolio.

Happy investing and earn more dividends!

0 comments:

Related Posts with Thumbnails