What is the dividend yield?

In the second of his online video tutorials, MoneyWeek deputy editor Tim Bennett explains another of the most popular measures for comparing stocks – the dividend yield

• See also: Are your dividends safe? An explanation of the dividend cover ratio.

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Dividend yield

Holders of ordinary shares in a company are paid a percentage of that company’s profits every year. The payment is called a dividend. The percentage is not worked out using an exact formula, but decided by the board and approved by shareholders at the AGM, depending on the company’s performance and priorities. The dividend per share (total dividends paid out divided by total number of shares) expressed as a percentage is referred to as the dividend yield.

So if a share is trading at 100p, and the dividend paid out last year was 2p, the yield is 2%. This is a popular measure for comparing stocks, but note that it is retrospective – telling you what the company paid out last year, not what it might pay out next. A low yield often – but not always – suggests a fast-growing company not yet making much profit. Investors will accept a low yield now in exchange for an anticipated high yield in the future. A high yield often indicates either a very risky or slow-growing company; investors demand a higher yield as compensation to invest in either.

• Entry from MoneyWeek’s Financial glossary

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  • simonc

    Is Dividend Cover next?

    On the home page it looks exactly the same as the last one, so I almost missed it.

    Has the hair got spikier?

  • Hugh Strafford

    Clearly presented. Many thanks.

  • Peter

    My 25 year old daughter came home last night for the weekend. She wanted to have a chat with me about “her finances”. She wants to start saving regularly into a share ISA. I was showing her my SIPP and ISA statements and trying to explain the meaning of ‘yield’.
    First thing this morning I check my Money Week review and find this clip. It is excellent and has every prospect of gaining ‘cult’ status. Please keep it going.It is also good to be able to see that Tim Bennett is not just a name on the page. Congratulations, brilliant.

  • Bernie Davies

    Thanks for the two videos Tim,much appreciate the simple,clear style.
    Hope these are the start of many topics in the investment field as you make it interesting,simple and concise.Don’t change the format.
    Bernie Davies

  • Tagware


    You need to mic the person speaking rather than allow the room dynamics to echo around the person. This will also stop background noise causing low playback volume.


  • Barry

    I agree with an earlier comment that the playback volume is a little low. However all in all, I found this to be a very useful & well presented. Thankyou!

  • johnnie

    I am confused! I follow that the yield for United Utilities is 5.1% (and that is what my paper says it is) but when I try to use Tim’s method for calculating the P/E ratio( i.e. 5.8÷0.3) it comes out at 19.3. My paper, however, says it is 9.9. Equally, I follow the calculation for Tesco’s P/E ratio at 14 and my paper agrees. But when I use Tim’s method for calculating the yield (i.e 0.3÷4.2) the answer is 7.1%, whereas the paper says it is actually 3.1% and I know for a fact that 3.1% is correct. I realise that it will be hugely embarrassing but I would be grateful if someone could be kind enough to tell me where I am going wrong!
    Best regards

  • john


    thoroughly enjoyed the second presentation. clear concise and interesting.


  • James Edgerton

    Very clear. Thanks.

  • Malcolm

    Didn’t get to see his first presentation. Is it still available anywhere? (if so please tell me where).

    Good clear presentation, and the format & whiteboard usage is good, though sound volume & quality could be improved.

    Looking forward to more like this. V. interesting and clear.

  • Tim Bennett

    Malcolm – you should be able to find the other video under the heading “a beginner’s guide to the p/e ratio”. There is a link a bit further down the page.

  • Tim Bennett

    Johnnie – on Tesco, if you take the share price just now – market close Monday – of £4.39 and divide by earnings per share for the financial year ended 27th February 2010 of 32p you get a p/e ratio of just under 14. Take the dividend for the full year ending 27th February 2010 of 13p and divide by the same share price (13/439) and the yield comes out at just under 3%. As for United Utilities, take the current share price of £5.87 and divide by eps for the year ended 31st March 2010 of 59p and you get a p/e ratio of just under 10. Take the dividend per share for the same year of 34p and divide by a share price of 587p and the yield comes out at just under 5.8%. Hope this helps!

  • Dariko

    Thumbs up for clarity of picture and information.
    More video topics will help.

  • Tim Bennett

    Simon – thanks for the suggestion (and the observation!)…dividend cover will indeed be coming up soon.

  • Johnnie

    Tim – many thanks! So there is a difference between earnings per share (Tesco, 32p for the full year) and the dividend (Tesco, 13p for the full year). If you can spare the time please explain what this difference is and where one can find such information.

    Best regards

  • tim Bennett

    Johnnie – yes, earnings per share is the full profit for the year divided by the number of shares in issue. Here 32p. The dividend is just the bit that the directors have chosen to pay to shareholders – here 13p. The rest is “retained” in the business for the future. EPS figures are published at the foot of a profit and loss account in the main financial statements. You can also pick up this information on sites such as digitallook.com or by going to the shareholders bit of the Tesco website (Investors Centre/financials/financial highlights). Hope this helps.

  • Johnnie

    Tim – all is now clear as daylight! Thank you so much and I am looking forward to more of your truly excellent ‘beginner’s guides’.

    Best regards

  • Barry

    Thanks. Excellent Presentation. Keep it going and keep the format the same.

  • Tom O’Neill

    Excellent – good crisp delivery, very clear and concise presentation. Closer mic needed though, and a drier ambient acoustic.
    I hope these tutorials will stay on the website for some time – they’re very useful to refer back to.

  • Tony Akram

    Hi Tim

    Excellent very clear and simple . Hope you do more especially on debt ie was told not to invest in a company whose debt was more than 3 x pre tax profits.

    Would appreciate your general thoughts



  • Steve E

    Very good Tim. Clear. Concise. Nice easy pace. Wonderfully “old-fashioned” – that’s a compliment. No whizzy graphics and silly music, cuts and angle changes – nothing that get’s in the way of what you want to get across. Many thanks. Steve

  • Listener

    An excellent series of videos clearly and concisely delivered. Very informative. Thank you very much.

  • Carole

    I have just watched all the videos and find them very clear and easy to understand. Very good presentation too – not at all condescending or patronising to the absolute beginners amongst us.
    Thank you very much and keep them coming.


  • Andy

    Very useful Tim, thanks very much for your clear and concise presentation.

  • RB

    Hi Johnnie – bookmark this site, useful explanation on the terms and how they are worked out… roughly speaking EPS is the total net profit of the company divided by the number of shares in issue… Dividend payments only use a proportion of the net profits fund pot (decided by management) divided by the number of shares.