Investor Corner/The asset classes/Equity Concepts
2.1.11 Dividend Yield
Dividend yield is the annual dividend per share divided by the share price. It shows income return on top of any price change, but an unusually high yield can sometimes be an early warning rather than a bargain.
Income as a percentage of price
A stock trading at ₹500 that pays ₹15 a year in dividends has a dividend yield of 3%. This figure lets investors compare income return across stocks trading at very different prices, and it matters most to investors who value a steady income stream alongside, or sometimes instead of, capital growth.
Why a high yield deserves a second look
Dividend yield rises whenever the share price falls, even if the company has not changed its dividend at all. A stock that recently fell sharply can suddenly show an unusually attractive yield, right before the company cuts that dividend because the business itself is struggling. A yield well above the typical range for its sector is worth investigating rather than treating as an automatic sign of value.
Using it well
Dividend yield works best when read alongside the company's payout ratio, the proportion of profit actually being paid out, and its history of maintaining or growing that dividend through both good and difficult years. A moderate, well-covered yield with a consistent history usually says more than a single high number that has appeared only recently.
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