what are dividend rate and dividend yield?
Stocks which pays dividends are very popular with investors as it provides a regular income. A dividend, also known as the dividend rate, is the total income an investor receives from stock or another dividend-yielding asset during the fiscal year.
Dividends are typically paid either quarterly or on an annual basis.
The dividend rate may be fixed or not, depending upon the preferences and strategies followed by the company offering the dividend. The board of directors of the company fixes the dividend rate, which is then approved by shareholders.
Let’s look at an example. Let’s assume that Company QWERTY’s stock pays an annual dividend of Rs40 per share in quarterly payments. So for each payment, an investor receives a dividend of Rs10. The
It is the financial ratio that represents a company’s current annual dividend compared to its current share price. The dividend yield is generally expressed in percentage and represents an estimation of the dividend-specific return of an investment. As mentioned above the dividend rate can either remain the same as the previous financial year, or it could increase or decrease. In case the dividend amount remains unchanged, the yield will rise when the stock price falls. Conversely, the yield will fall in case the stock price rises. Since the dividend yield changes with the stock price, it may often appear unusually high, especially for those stocks, which are falling quickly.
For example, a stock with a current share price of Rs75 pays an annual dividend of Rs3.25 per share. When 3.25 is divided by 75, it equals 0.0433. The company’s dividend yield is 4.33 percent.
As an investor, you are more likely to see the dividend yield quoted than the dividend rate. The initial reason for this makes sense—a company that pays out dividends at a higher percentage of its share price is offering a greater return for its shareholders’ investments.