What is meant by Dividend yield?
Dividend yield gives the relationship between the current price of a stock
and the dividend paid by its’ issuing company during the last 12 months. It
is calculated by aggregating past year's dividend and dividing it by the
current stock price.
Share price: Rs. 360
Annual dividend: Rs. 10
Dividend yield: 2.77% (10/360)
Historically, a higher dividend yield has been considered to be desirable
among investors. A high dividend yield is considered to be evidence that a
stock is underpriced, whereas a low dividend yield is considered evidence
that the stock is overpriced. A note of caution here though. There have been
companies in the past which had a record of high dividend yield, only to go bust in later years. Dividend yield therefore can be only one of the factors in determining future performance of a company.
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