Dividend Yield Ratio
Understanding Dividend Yield Ratio: Evaluating Income from Dividends
The Dividend Yield Ratio is a financial metric that indicates the percentage return an investor receives in the form of dividends relative to the market price of a company's stock. It helps investors assess the income-generating potential of owning a particular stock through dividends.
Dividend Yield Ratio = (Annual Dividend per Share / Market Price per Share) × 100
Suppose Company ABC has the following financial details:
Annual Dividend per Share: $2.50
Market Price per Share: $50
To calculate the Dividend Yield Ratio:
Divide annual dividend per share by market price per share and multiply by 100: (2.50/50)×100=5%
A Dividend Yield Ratio of 5% indicates that an investor earns a 5% return on their investment in Company ABC through dividends, relative to the current market price of the stock.
Market Value Ratio