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What is the meaning of Dividend Yield? There are some funds which have dividend yield in their names. What kind of returns that I should expect from them?
-Hiren Parekh
Dividend yield is a terminology used for the arithmetic calculation-- the dividend paid by the company in the last one year divided by the market price of its share. For example, suppose the current market price of a stock X is Rs 1,000. It has paid a dividend of Rs 30 in the last one year. This means its dividend yield is 3 per cent.
There are basically two ways by which you earn from a stock- firstly the capital appreciation which is reflected in the increase in the share price, and secondly the dividend which it declares from time to time. Together, they constitute the total return from a share.
Investors who follow the dividend yield strategy of investing look for stocks which have a track record of paying high dividends in proportion to their price as this may translate into a relatively higher return on investment. There are quite a few equity funds which follow this strategy and invest in stocks having a high dividend yield.
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This article was originally published on April 24, 2006.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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