Among the many things that Indian shareholders love is liberal dividends. That explains the attraction for PSU stocks as most of these PSU stocks are extremely liberal on dividend pay-outs and carry hugely attractive dividend yields. One way to understand how much dividends companies are paying is through the dividend yield calculator.
Let us first spend a moment on the concept of dividend itself before going to dividend yield calculator. A dividend is a portion of a company's profit that is paid back to shareholders as return on investment. Normally, companies that pay regular dividends are financially stable companies with a track record and pedigree. Utility stocks and consumer discretionary stocks are classic examples of companies that traditionally pay healthy dividends.
Before we get into the idea of dividend yield calculator, let us first spend a moment on Dividend yield. Now, dividend yield is different from dividend pay-out. While dividend pay-out measures the ratio of the DPS to the EPS, the dividend yield is a ratio of the DPS to the market price of the stock.
In short, dividend yield calculates the rupee amount of a company's current annual dividend per share divided by its current stock price. For example, a company with a stock price of Rs.100 and paying dividend of Rs.4 per share, has a dividend yield of 4%.
Why do dividend yields change over time. If the company is expecting growth in earnings and revenue, they may project a dividend increase. If the company is expecting slowing and/or declining earnings and revenue, they may project keeping the dividend the same. All these factors will impact the dividend yield. One way to measure the dividend yield in a jiffy is by using a dividend yield calculator.
There is an important merit in using this dividend yield calculator. Of course, it helps you figure out the dividend yield of a stock, but that is most basic utility. The dividend yield calculator also helps you to screen companies based on the dividend yield. That is where the real importance of a dividend yield calculator comes into play.
The dividend yield calculator calculates the dividend yield using the following formula:
Dividend yield = Current annual dividend per share / current stock price
Let us take an example to understand the kind of output that dividend yield calculator India can generate. For example, if you open the dividend yield calculator online and input details like Rs.2 dividends paid annually by Company X with a stock price of Rs.60 then the dividend yield calculator India will immediately work out the dividend yield as 3.33%.
In short, 2/60 = 3.33%
Since the dividend yield is based on current market price and the current market price keeps changing, the dividend yield keeps changing over time. A typical dividend yield calculator considers the rolling four quarters dividends in real time and divides the price of the stock in real time. So, you get the dividend yield updated at all times.
The interpretation of the dividend yield calculator is perhaps the most interesting part. Remember, just saying that high dividend yield is good and low yield is bad, is not good enough. You need to get into finer aspects of the dividend yield calculator. Here is how.
Interpreting the dividend yield calculator output
In reality, dividend yield is just one of the many parameters to look at in evaluating the attractiveness of the stock. Investors will have to look at other factors also to decide which company's stock is better to own. That is the bottom line and that is where as a decision support system, the dividend yield calculator comes in extremely handy.
What is Dividend?
Dividend is a share of profit that the company distributes to its shareholders. A dividend is normally expressed in percentage (as percentage of face value) or in absolute terms as dividends per share or DPS.
What is Dividend Pay-out?
Dividend pay-out shows how much of the profit earned by the company is paid out as dividends. For example, a dividend pay-out ratio of 50% means that out of every Rs.100 earned by the company, it pays out Rs.50 as dividends to shareholders.
How to calculate Dividend pay-out?
Dividend pay-out is the ratio of dividends pay-out to the profits earned. In terms of mathematical formula, you can express dividend pay-out as under:
Dividend pay-out = Dividend per share / Earnings per share .or. DPS / EPS
How much is a good dividend?
There is nothing like a good dividend but most companies try to maintain a dividend policy where they give an approximate idea that out of the surplus each year, X% will be paid out as dividends. Normally, stable and matured businesses pay more of their profits as dividends whereas companies that are in the growth phase plough more of their profits into the company for future growth.
How many times can I receive dividends in a year?
Normally, companies pay interim dividends and then there is the final dividend which makes up the total dividend. Nowadays, most companies give one or two interim dividends and one final dividend.