Dividend Yield Calculator
What is a Dividend Yield calculator?
Dividend Yield calculator is an online tool that helps you calculate the Dividend Yield of a stock. It takes into consideration below inputs in order to calculate the Dividend Yield.
- Annual Dividend: The dividend that is paid out to the shareholders per year.
- Current Market Price: The market price at which the stock is trading.
On the basis of the above inputs, the FD calculator calculates the interest earning and maturity value in a matter of seconds.
Benefits of using BT Dividend Yield Calculator
The benefits of using BT Dividend Yield Calculator are summarised below
- Easy to use: The Dividend Yield Calculator is easy to use. Just input the annual cash dividend per share and the current stock price. The calculator computes the Dividend Yield in a matter of seconds.
- Comparison: The Calculator helps in comparing stocks on the basis of Dividend Yields. Stocks with consistently high Dividend Yields are considered stable stocks.
- Free to use: The Dividend Yield Calculator is free to use with unlimited access.
How does Dividend Yield calculator work?
Dividend Yield calculator uses the following formula to calculate Dividend Yield
Dividend Yield =
Annual Dividend per share
Current market price per share
For example, if a utility stock, A has a share price of Rs 150 and annual dividend payout of Rs 5, then its Dividend Yield will be 0.03. Expressed as a percentage, the Dividend Yield of the stock will be 3%. If the share price of A increases to Rs 200 but the annual dividend payout does not change, then Dividend Yield will fall to 2.5%.
The below table shows the dividend payout by NTPC Ltd
| Ex-Date | Dividend Amount | Dividend Type | Record Date | Instrument Type |
|---|---|---|---|---|
| Feb. 3, 2023 | 4.25 | INTERIM | Feb. 4, 2023 | Equity Share |
| Aug. 10, 2022 | 3 | FINAL | Aug. 11, 2022 | Equity Share |
| Feb. 3, 2022 | 4 | INTERIM | Feb. 5, 2022 | Equity Share |
During the financial year 2022-23 (Apr 2022 till Mar 2023), NTPC declared dividend amounting to Rs 7.25 (3 + 4.25). Considering the market price of NTPC (as on 22nd June, 2023) at Rs 185.10, the Dividend Yield of NTPC will be 7.25/185.10 = 3.91%.
What is Dividend?
Dividend is part of company’s profits or accumulated earnings that it pays out to its shareholders. Preferred stockholders with no voting rights have a greater priority to receive dividends than common stockholders with voting rights. The frequency of dividend payouts can be monthly, quarterly, semi-annually or annually. Companies that pay regular dividends indicate their stability. Dividends incentivise investors to stay invested in the company. On the flip side, dividends erode company’s earnings. Normally companies in growth stage refrain from distributing dividends to their shareholders. The profits are ploughed back in order to bolster growth.
What is Dividend Yield?
Dividend Yield of a stock measures the income that an investor earns in dividend payouts per year in relation to every rupee invested in its equity. It is expressed as a percentage.
Dividend Yield =
The Dividend Yield can be broken down into 2 parts
Annual Dividend per share
Net Profit
X
Net Profit
Current market price per share
= Dividend Payout Ratio
X
Earnings Yield
Thus, Dividend Yield can be explained as a product of Dividend Payout Ratio and Earnings Yield (inverse of Price Earnings ratio). The ratio of Dividend Yield and Earnings Yield shows how much of the earning is distributed to the shareholders in the form of dividends. Dividend Yield is dynamic. It changes with change in stock price and dividend payouts. A high Dividend Yield is enticing since you receive more income per rupee invested. However, a high Dividend Yield can also result from falling market price. Normally, Growth stocks do not pay dividends as they plough back their earnings for further growth. On the contrary, value stocks tend to have a high Dividend Yield. Companies with a consistent track record of increasing or stable dividend payouts for at least ten consecutive years are called Dividend Aristocrats.
Advantages of Dividend Yield
The advantages of Dividend Yield are enumerated below
- Comparing stocks: Generally, Value stocks have higher Dividend Yields as compared to Growth stocks. Growth stocks tend to plough back their earnings. This results in lower Dividend Payouts and consequently lower Dividend Yields. On the contrary, Value stocks tend to have low Price/Earnings ratio but high Dividend Yields.
- Assessing company’s financial strength: Stocks with high Dividend Yields are considered stable. During recession, Earnings per Share tend to fall. However, empirical evidence shows that dividends are more stable than earnings during recession. During an economic downturn, Dividend Aristocrats that is, companies that maintain stable dividends at all times, tend to outperform.
- Designing Portfolio strategies: Stocks with high Dividend Yields are normally preferred by risk-averse investors. Strategies designed to preserve capital tend to include stocks with a consistent track record of stable Dividend Payouts. This is intended to mitigate or offset capital loss due to a decline in stock prices.
Disadvantages of Dividend Yield
The following are the disadvantages of Dividend Yield
- Price effect: Dividend Yields can rise due to a decline in stock prices. Consider 2 companies, X and Y each with a Dividend Payout of Rs 20 per share. The stock price of X is Rs 5 while stock Y is trading at Rs 2. Therefore, the Dividend Yield of X will be (20/5) = 4 while the Dividend Yield of Y will be (20/2) = 10. Thus, despite same Dividend Payouts, stock Y has a higher Dividend Yield as compared to stock X.
- Misleading: Stocks with a high Dividend Yields but plummeting prices are a caveat for investors. Stock prices are an indicator of investors’ sentiment. In order to offset the effect of declining prices, companies may resort to high dividend payouts in order to entice investors to stay invested. This may lead to dwindling earnings with attendant implications on stock prices. Thus, companies with high Dividend Yields are not necessarily stable companies. It is pivotal to track the consistency of Dividend Payouts in order to gauge their stability.
Which types of companies tend to have high Dividend Yields?
Value stocks tend to have higher Dividend Yields as compared to Growth stocks. In market parlance, companies with a consistent track record of stable or increasing Dividend Payouts for at least ten consecutive years are called Dividend Aristocrats. Companies with predictable earnings tend to have higher Dividend Yields. Defensive sectors like consumer staples, energy, utility etc tend to have high Dividend Yields as they are impervious to the vagaries of market cyclicality.
