100 Days Learning Series📈
DAY 12: Dividend Yield
#100_Days_Learning_Series
DAY 12: Dividend Yield
#100_Days_Learning_Series
🎓 What is Dividend Yield?
👉Dividend yield shows how much a company pays out in dividends each year relative to its stock price.
👉It’s a key metric for income-focused investors.
👉For example, if a company pays ₹20 in dividends annually per share and the stock price is ₹500, the yield is 4%.
👉Dividend yield shows how much a company pays out in dividends each year relative to its stock price.
👉It’s a key metric for income-focused investors.
👉For example, if a company pays ₹20 in dividends annually per share and the stock price is ₹500, the yield is 4%.
🧮 How to Calculate Dividend Yield?
Dividend Yield=(Annual Dividends per Share/Price per Share)×100
Example: If a company pays ₹15 in dividends per year and the stock price is ₹300:
(15/300)×100=5%
This means for every ₹100 invested, you get ₹5 back annually in dividends.
Dividend Yield=(Annual Dividends per Share/Price per Share)×100
Example: If a company pays ₹15 in dividends per year and the stock price is ₹300:
(15/300)×100=5%
This means for every ₹100 invested, you get ₹5 back annually in dividends.
💰 Why is Dividend Yield Important?
👉Income Generation: Suppose you own 1000 shares of a company with a 4% yield. If each share is ₹500, your annual dividend income is ₹20,000 (1000 shares x ₹20 per share).
👉Comparison Tool: If Company A has a yield of 3% and Company B has 5%, Company B might be more attractive for income, but consider other factors like stability.
👉Risk Indicator: A company with a 10% yield might seem attractive, but it could indicate financial trouble if the stock price has dropped significantly.
👉Income Generation: Suppose you own 1000 shares of a company with a 4% yield. If each share is ₹500, your annual dividend income is ₹20,000 (1000 shares x ₹20 per share).
👉Comparison Tool: If Company A has a yield of 3% and Company B has 5%, Company B might be more attractive for income, but consider other factors like stability.
👉Risk Indicator: A company with a 10% yield might seem attractive, but it could indicate financial trouble if the stock price has dropped significantly.
📉 Factors Affecting Dividend Yield:
👉Stock Price Changes: If a stock price drops from ₹1000 to ₹500 and it pays a ₹50 annual dividend, the yield increases from 5% to 10%.
👉Dividend Policies: A company increasing its dividend from ₹10 to ₹15 per share, with a stable stock price of ₹300, will see its yield rise from 3.3% to 5%.
👉Economic Conditions: During a recession, companies might cut dividends to save cash. If a company cuts its annual dividend from ₹20 to ₹10, the yield drops if the stock price remains constant.
👉Industry Trends: Utilities, like NTPC, often have higher yields (e.g., 4-5%) compared to tech companies like Infosys, which might offer lower yields (e.g., 1-2%).
👉Stock Price Changes: If a stock price drops from ₹1000 to ₹500 and it pays a ₹50 annual dividend, the yield increases from 5% to 10%.
👉Dividend Policies: A company increasing its dividend from ₹10 to ₹15 per share, with a stable stock price of ₹300, will see its yield rise from 3.3% to 5%.
👉Economic Conditions: During a recession, companies might cut dividends to save cash. If a company cuts its annual dividend from ₹20 to ₹10, the yield drops if the stock price remains constant.
👉Industry Trends: Utilities, like NTPC, often have higher yields (e.g., 4-5%) compared to tech companies like Infosys, which might offer lower yields (e.g., 1-2%).
📈 Investing in Dividend-Yielding Stocks:
👉Dividend Aristocrats: Tata Consultancy Services (TCS) has a consistent record of paying dividends. With a stock price of ₹3800 and an annual dividend of ₹73, its yield is about 1.92%.
👉High-Yield Stocks: Coal India with a yield of around 5.34% might be attractive, but always check the company’s financial health.
👉Dividend Growth Stocks: HDFC Bank, with consistent dividend growth, might have a yield of 1%, but its annual increases make it attractive for long-term investors.
👉Dividend Aristocrats: Tata Consultancy Services (TCS) has a consistent record of paying dividends. With a stock price of ₹3800 and an annual dividend of ₹73, its yield is about 1.92%.
👉High-Yield Stocks: Coal India with a yield of around 5.34% might be attractive, but always check the company’s financial health.
👉Dividend Growth Stocks: HDFC Bank, with consistent dividend growth, might have a yield of 1%, but its annual increases make it attractive for long-term investors.
✅ Advantages of Dividend-Yielding Stocks:
👉Regular Income: Owning 500 shares of a stock with a ₹40 annual dividend provides ₹20,000 in yearly income.
👉Potential for Compounding: Reinvesting dividends from a stock with a 5% yield can significantly grow your investment over time.
👉Lower Volatility: Companies like Hindustan Unilever, with stable dividends, tend to be less volatile than high-growth tech stocks.
👉Regular Income: Owning 500 shares of a stock with a ₹40 annual dividend provides ₹20,000 in yearly income.
👉Potential for Compounding: Reinvesting dividends from a stock with a 5% yield can significantly grow your investment over time.
👉Lower Volatility: Companies like Hindustan Unilever, with stable dividends, tend to be less volatile than high-growth tech stocks.
❌ Disadvantages to Consider:
👉Interest Rate Sensitivity: If interest rates rise, fixed deposits and bonds might offer better returns, making a 3% yield less attractive.
👉Tax Implications: In India, dividends are taxed at the investor’s applicable income tax rate, which can affect net returns.
👉Risk of Dividend Cuts: Companies might reduce or eliminate dividends in tough times. For example, during the COVID-19 pandemic, many companies reduced their dividend payouts to conserve cash.
👉Interest Rate Sensitivity: If interest rates rise, fixed deposits and bonds might offer better returns, making a 3% yield less attractive.
👉Tax Implications: In India, dividends are taxed at the investor’s applicable income tax rate, which can affect net returns.
👉Risk of Dividend Cuts: Companies might reduce or eliminate dividends in tough times. For example, during the COVID-19 pandemic, many companies reduced their dividend payouts to conserve cash.
📝Conclusion:
Dividend yield is a powerful tool for income-focused investors. Balancing yield with the company’s financial health and growth prospects is crucial.
For instance, a 4% yield from a stable utility company like Power Grid Corporation might be preferable to a 10% yield from a financially unstable company.
Dividend yield is a powerful tool for income-focused investors. Balancing yield with the company’s financial health and growth prospects is crucial.
For instance, a 4% yield from a stable utility company like Power Grid Corporation might be preferable to a 10% yield from a financially unstable company.
That's a wrap!
I hope you found this compilation helpful!
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Radhe Radhe 😍
I hope you found this compilation helpful!
Want to stay connected?
Join my Telegram Channel for more insights: telegram.me 📲
Radhe Radhe 😍
You can Find Previous Learning Tweets here:
DAY 1: Indian VIX
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DAY 2: PEG Ratio
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DAY 3: Engulfing Candlestick
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DAY 4: Shooting Star Candlestick
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DAY 5: Hammer Candlestick
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DAY 6: Most Useful Stock Market Apps/Websites
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DAY 7: PE Ratio
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DAY 8: Peter Lynch Investing Screener
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DAY 9: Market Capitalization (Market Cap)
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DAY 10: Debt-To-Equity Ratio
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DAY 11: The Greatest Investors of All Time (MUST READ🚨)
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Radhe Radhe 🌴
DAY 1: Indian VIX
x.com
DAY 2: PEG Ratio
x.com
DAY 3: Engulfing Candlestick
x.com
DAY 4: Shooting Star Candlestick
x.com
DAY 5: Hammer Candlestick
x.com
DAY 6: Most Useful Stock Market Apps/Websites
x.com
DAY 7: PE Ratio
x.com
DAY 8: Peter Lynch Investing Screener
x.com
DAY 9: Market Capitalization (Market Cap)
x.com
DAY 10: Debt-To-Equity Ratio
x.com
DAY 11: The Greatest Investors of All Time (MUST READ🚨)
x.com
Radhe Radhe 🌴
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