Dividend yield

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.

A dividend yield is simply a company’s total annual dividend per share – the amount of money it has paid or will pay to shareholders in a year – divided by its current share price and expressed as a percentage. For example, if a company paid a single dividend of 10p per share this year and its shares are trading at a price of 1,000p, the dividend yield would be 10p ÷ 1,000p = 0.01 (which is 1%). If the firm paid a dividend of 5p after half a year (usually called an interim dividend) and a further 10p at the end of the financial year (a final dividend), you would add the two together and get (5p + 10p) ÷ 1,000p = 0.015 (1.5%).

Dividends are not fixed: a company may vary its dividend according to how profitable the past year has been, whether it needs to hold on to more of its profits to invest in maintaining or growing its business, or whether it has more cash than it needs and wants to make an extra one-off payment to shareholders (often called a special dividend). So we need to take this into account.

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