Simple Valuation Methods

Dividend Yield

One common measure that is used to compare different investments is the dividend yield. A dividend yield is the amount of money that a company pays as a dividend, in relation to the share price.

The dividend yield is calculated using the formula: (dividend paid in a given year ÷ current share price) x 100. For example, ($100 ÷ $1000) x 100 = a dividend yield of 10%.

The dividend can only be used to compare stocks that actually pay a dividend – some don’t. Nonetheless, it can be a useful calculation to use when deciding upon different investment options.

Dividend yields tend to vary from one industry to another, so it’s important to only use the calculation to compare stocks from the same industry. Different sectors tend to have different dividend policies.

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