Table of Contents
Introduction-Dividend Yield
Before we understand what dividend yield is, we should revise the basic terms related to Dividend Yield.
Dividends
Dividend is nothing but a sum of amount paid by a company to its shareholders out of its profits. Thus a dividend is the distribution of a portion of the company’s earnings, decided by its board of directors, to the shareholders. Dividends are the rewards for the investors for putting their money into the business.
Company can distribute dividend in the form of Cash or dividends can be issued in the form of shares or any other property, etc.
Prior to Finance Act, 2020 dividends were taxable in the hands of company by paying Dividend Distribution Tax (DDT). Thus exempt income in the hands of recipient of such income. Now Budget 2020 has proposed to make dividend income taxable in the hands of recipient by abolishing DDT levied by the company or mutual fund agencies.
Share Price
In simple language a share price is the price or amount someone is willing to pay for a share in share capital of the company.
What is Dividend Yield??
Dividend Yield is the ratio of cash dividends paid by the company for each share to its share price. It is expressed in percentage.
Formula:
The dividend yield is an estimate of the return of a stock investment made.
Analysis
Dividend Yield represents the relationship between the dividend paid by the company and the price of its share. Higher Dividend Yield may represent that the price of share is undervalued as dividend per share will remain same. So, you can use this tool to identify right time for investment.
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