Dividend is key that you will get from tree called investments. You need to understand this concept. So you can get your dividend dues on time. But also understand its importance in investment strategies. However, dividend is free income tax. Hence, dividend is main part of returns. And you will get from your investments.
Dividend primary ratios
There are only three primary ratios connected with dividend. Like Dividend Yield, Dividend payout ratio, Dividend percentage. Probably, dividend on equity shares is not fixed. And it may differ from year to year depends on profits. Generally, dividends are paid yearly. So dividend is known as final dividend. Check out last five year dividend history.
Dividend yield is relation between annual dividend payout and current stock price. And it depends on how much stock price moves in day. Therefore dividend yield will change as stock price changes. Yield is an easy way to compare various dividend-paying stocks.
However, dividend yield is financial ratio that measure cash dividend. But company will returns in form of dividend. For example, if company pays an annual dividend of Rs 40. So in Market Company stock price is quote around Rs 1000. Then dividend yield is 4 per cent. Check Earnings per Share (EPS).
Similarly, dividend yield is best ratio to calculate for dividend. But, it takes current market price to calculate returns. Moreover, dividend yield measures in form of percentage. And it increase in asset value by stock appreciation. View dividend history of companies.
Therefore, you can invest your money in stock. Because, to earn return also by dividend or stock appreciation. But some companies pay dividend on regular basis. And these shares are called income stocks. Similarly, other companies will not issue dividend. They will reinvest this money in business. Further these shares are called growth stocks. See below dividend yield formula.
Dividend Yield = (Annual dividend per share / Current market price of stock)*100
Dividend Payout Ratio
Payout Ratio of dividend is percentage of Company earning. So it pays out to in form of dividend. It calculates by dividing dividends paid by net earnings for that period. Therefore it measures percentage of earning. But company reinvest in projects to generate future growth.
However, Dividend payout ratio is main sign of company performance. But, you can expect return on your investment. And dividend will come from two sources. Such as capital gains and dividend paid. Therefore return from these two sources is inter-related. Moreover, high dividend payout means. That company reinvests less earnings in future projects. It means less capital gains in future periods.
Similarly, low payout ratio may effect in higher capital gains in future. To find business’s dividend-payout ratio for given period. See below dividend payout ratio formula.
Dividend Payout Ratio = Total Dividend / Net Income
This calculation will give you overall dividend ratio. And you can see total dividend and net income report in financial statements. You can also calculate dividend payout ratio on share. Hence, you can also compare Average Dividend Yield by Sector
Dividend percentage is measure on face value of shares. This ratio is useful to measure company dividend over long period. As it calculate on common base of face value. See below formula for calculating dividend per cent.
Dividend Percent = (Dividend received/Face value) * 100
Therefore, suppose company declare 300 per cent dividend. It means company will pay three times of face value. For example, if company with face value of Re 1 per share decides to distribute 300% as dividend. And its shareholders will get Rs 3 per share for every share.
Dividend Percent = (3/1) *100= 300.
Earnings per Share
Earnings per Share also called net income per share. And it measure amount of net income earned per share of stock. Therefore Earning per share is also shows how company gain on shareholder. So larger company profits per share is compared to smaller company profit per share. You can find below formula. See Earnings per Share examples
Earnings per Share = (Net Income – Preferred Dividends) / Number of Common Shares Outstanding
Finally, to better estimate your future returns check out this dividend yield calculator. However, Check out Best Dividend Stocks. View Earnings per Share analysis. For more details check dividend policy. Hence, check types of policy.