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What Is Dividend Yield? How To Calculate Dividend Yield?

IndianMoney.com Research Team | Updated On Friday, July 13,2018, 11:45 AM

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What Is Dividend Yield? How To Calculate Dividend Yield?

 

 

 

If you are an investor in shares and mutual funds, you must be well familiar with Dividends. Some of the Companies whose shares you own may declare Dividends. These Dividends are credited directly to your bank account.

So what are Dividends? These are nothing but cash payments made by a Company to you and other shareholders, out of its profits. For a Company to declare dividends there must be profits.

Let’s say a Company earns profits. This Company reinvests a part of these profits, back in the business. These profits are called retained earnings. The other portion, (Remaining Earnings) are distributed to shareholders as dividends.  

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What Is Dividend? How To Calculate Dividend Yield?

 

You must be wondering what’s interim dividend. Interim Dividend is the dividend payment a Company makes, before the AGM (Annual General Meeting) and the release of the Company’s final financial statements. Some Companies declare dividends in between the Financial Year. These are the Interim Dividends.

If a Company declares interim dividends, they may be accompanied by a Company’s Interim Financial Statements.

What is Final Dividend? Final Dividends are the dividends declared by the Company’s Board of Directors after the Company has issued all the financial statements for the entire financial year. Final Dividends are usually larger than the Interim Dividends.

 

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1. What are Dividends?

 

Dividends are the money paid to shareholders from a Company’s profits. Dividends are in percentages and are declared against the face value of shares.

A Company has no legal obligation to pay dividends to its shareholders. Dividends are a part of the profits/cash in hand which a Company shares with the shareholders.

All Dividends are tax free in the hands of shareholders. But, there’s a tax called Dividend Distribution Tax (DDT) which is charged to the Company paying the Dividend.

There is Dividend Distribution Tax charged even on mutual funds.

  • Dividend Distribution Tax is charged on debt oriented mutual funds at the rate of 25%. This translates to 29.12% including surcharge and cess.
  • Equity oriented funds used to be exempt from DDT. However, after Budget 2018-19, there’s a tax of 10% on equity oriented mutual funds. (This is 11.65% including surcharge and cess).  

 

2. What is Dividend Yield?

 

A Company pays Dividends to its shareholders. You already know what are Dividends. It’s time to learn what are Dividend Yields. Dividend Yields give an idea on how much a shareholder earns per share, through total dividends from his investments.

Calculating dividend yield is very easy. All you have to do is divide the dividend announced by the share price. You then multiply the figure by 100.

Dividend Yield = Total Annual Dividend per share / Current Share Price.

 

SEE ALSO: How To Save Income Tax Through Your Family Members

 

3.  How to calculate Dividend Yield?

 

Let’s say a Company ABC has declared Rs 3 dividend per share. The Current Market Price is Rs 100 a share.

Dividend Yield = Dividends declared per share / Current Market Price.

Dividend Yield = 3 /100 = 0.03.

The share has given a dividend yield of 3%.

 

4. How to calculate Dividend per share?

 

Let’s say HDFC Bank has declared a dividend of 650% a share. The face value of each share is Rs 2.

You have to multiply the face value of the share (HDFC Bank in this case) with the % of dividend declared. (This is 650% a share).

The Dividend per share = X% of dividend * Face Value of the share.

The Dividend per share = 650% * 2 = Rs 13.

So HDFC Bank has given a dividend of Rs 13 a share.

Let’s calculate the Dividend Yield of HDFC Bank.

Assume HDFC Bank has a share price of Rs 2,000.

Dividend Yield = Dividends declared per share / Current Market Price.

Dividend Yield = 13/2000 = 0.65%.

Remember: Growth stocks have low dividend yields compared to Dividend stocks as they pump the earnings back into the business.

 

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