Dividend Yield But suppose if you are an investor who is looking for dividend income, and are in long term, then one of the ratios that are very much useful is Dividend Yield. This ratio tells you what percentage return a company pays out to its shareholders in the form of dividends. Older, well-established companies tend to payout a higher percentage then younger companies and their dividend history can be more consistent. Take the case of ITC, and many such companies, the dividend is a consistent one. You calculate the Dividend Yield by taking the annual dividend per share and divide by the stock’s price. Dividend Yield = annual dividend per share / stock's price per share For Example, if a company's annual dividend is Rs.1.50 and the stock trades at Rs.25, the Dividend Yield is 6%. (Rs.1.50/25 = 0.06)
Return on Equity (ROE) It is one measurement on how well a company uses its assets to generate earnings. You calculate ROE by dividing Net Income by Book Value. A healthy company may produce an ROE in the 13% to 15% range. Though it is useful ratio, what if a company has large debt and raises funds through taking loan from a banktsk, than issuing stocks, then the book value will differ. A lower book value means the return on equity will be high…though actually it is an artificial one.tsktsk
now that we know a little of the ratios that can be used for FA, I have tried my maximum to write as simply as i have tried to understand the concepts.. maybe if we discuss a few examples it will become easier.....hi all enthusiasts let us try it out....:welcome
Hi Shanthi - very good discussion about fundamental terms in investing. Since I work for an investment company, these are things that our analysts are looking at when we are contemplating new investments as well as when we market our funds. One thing in the dividend yield area that I think is worth mentioning here is - sometimes when stocks trade down and dividend remains the same, the yield goes up. It is worth keeping this in mind when looking at dividend yield history; i.e is the yield going up due to increase in dividend and stock trading even or is yield going up due to stock trading down and dividend remaining stable.
hi shobana, Thanks for stepping in. We do need the useful inputs from you. as i have mentioned earlier, i am not a finance person, this is only my interpretation of things....and just sharing with others. On the dividend yield, the same company ITC is an example of what you mentioned in your FB. ITC which is into FMCG has been underperformer the whole year. the stock price has been showing only slightly variations.....but the dividend is good and stable. so the yield ratio, when it is higher or stable, in this case will naturally be due to the stability in the dividend. Here again it is the decision of the investor whether he wants to remain invested or not....or..that is to buy into the company. (P.S.Hope i have not goofed up in my interpretations anywhere..I request you to correct me if i am have,...as lot of us are learning together through this thread..)
Shanthi - you are not goofing up in your interpretations - just thought I would add to what you had noted. For non-finance people, we can add another dimension to the discussion by giving them reasons for why dividend yield goes up so that they can look at it from different angles. Believe me, I am also learning a lot more about this now since I am in the midst of it - my background is tax, so I am learning on a daily basis!! I am looking forward to more participation by IL's.
Hello Shanthi I will surely join in the dicussion but you are going on quite well. And explaining it too well. I was not in touch with all this for last more then 10 yrs I never put my head into it but coming to this site a lot of things are coming back and refreshing my brains. Writing it down may take sometime as I don't want to do mistakes, and mislead on anything. But thanks your thread encouragous me in many ways. It will take some time but I will be there. 33% dividend is good percentage for a good so don't hit on your head. In Egypt the investor get their divident from the company after the workers are given 2 month salary. If the company is profit making company. So every country has different way of giving dividend
Hey arunayaar, 33% is a good percentage. but i was missing something there so was bonk. And reading your fb i got it back.... Dividend is paid on the face value of the stock..and not on the current stock price... so 33% of itc share could mean....33% of Rs.1 (As the face value of ITC is Rs.1..and the stock price today is Rs.189.) Thanks yaar....
Dear Shanthi, You are truly amazing!! Right from a post which talk abt school admission to stock market to posting events at Chennai, you have a great knowledge...Hats off to you!bonk You are a very resourceful person!!!! I am into the stock market for the last 2 years but I follow Indian Stock Market >> Stock Prices >> Stock Recommendations >> Hot Stocks >> Stock Market Investing >> BSE >> NSE >> Derivatives >> Market Statistics >> Most Active Shares >> Penny Stocks India >> BSE index and securities information and regular recommendations provided by Deccan Chronicle on Mondays and buy my stocks and I go blindly by some experts. So far I have not had a very bad experience except now. Even now, I will attribute it to global sentiments which our market responds and not to fundamentals of the company. This particular thread is so informative in making me understand different terms which I have never mastered but still been a trader and an investor. Thanks once again! -Anusha
