What is Dividend Yield? Is a Higher Dividend Yield Better? As an important indicator for stock investment, understanding dividend yield, knowing how to interpret it, and determining whether it is reasonable are essential lessons for investors to learn how to make money from stocks.

Today, Caven Growth Team has organized basic information about dividend yield, including what dividend yield is, what annualized dividend yield is, what cash dividend yield is, how to calculate dividend yield, how to look up dividend yield, and common questions about dividend yield.

Additionally, we have provided articles on how to calculate stock dividends and ex-dividend calculations for your reference!

 

What is Dividend Yield?

Dividend yield, also known as cash dividend yield or stock dividend yield, is calculated by dividing a company's cash dividend per share by its stock price (cash dividend ÷ stock price), which gives the ratio of the dividend per share to the stock price.

If you are new to stock investing, the information provided by the dividend yield can help you understand the following three aspects of a company:

1. Dividend Return Rate: Helps assess whether the company's dividend return rate meets your expectations.
2. Company Stability: If the company can consistently pay dividends and maintain a high dividend yield, it indicates that the company has stable performance and better financial health.
3. Investment Return Comparison: By comparing the dividend yields of different companies, you can evaluate the investment value of each company.

Additionally, the dividend yield of stocks is different from that of bonds. Stock prices fluctuate, and dividends are not always fixed.

Therefore, it is recommended that investors check the dividend yield of their investment targets before investing to understand the profitability of the stock and then decide whether to buy it.

For more essential introductory information on stock investment, please refer to the articles on stock investing for beginners.

Further Reading: Beginner’s Guide to Stock Investing | How to Buy Stocks - Expert Guidance | Complete Five-Step Guide

Annualized Dividend Yield

Annualized dividend yield is different from annualized return rate. Annualized dividend yield refers to the amount of dividends distributed to shareholders each year.

For example, if Company A's stock price is NT$100 and it distributes a dividend of NT$2.5 per year, then Company A's annualized dividend yield is 2.5 ÷ 100 = 2.5%.

※ Annualized Dividend Yield Calculation Formula: Dividend ÷ Stock Price = Annualized Dividend Yield

Cash Dividend Yield

Cash dividend yield is essentially the commonly known dividend yield. Long-term investors use the calculation of cash dividend yield to determine whether the stock price of the investment target is expensive and whether it is worth buying.

After buying, they hold the stock for several years, focusing only on how much cash dividends they can receive each year.

For more information on stock dividends and ex-dividends, refer to the article on what ex-dividend is.

Further Reading: Ex-Dividend Calculation Guide | How to Calculate Ex-Dividends & Expert Analysis of Pros and Cons

How to Calculate Dividend Yield?

To calculate the dividend yield, you can either check directly on a securities website or use the following formula:

Dividend Yield = Cash Dividend ÷ Stock Price

For example, if you buy shares of Company A at NT$64.2 and the most recent cash dividend distributed by Company A is NT$1.6, then the dividend yield for your purchase of Company A's stock is: 1.6 ÷ 64.2 = 2.49%.

How to Look Up Dividend Yield?

To look up the dividend yield of a stock, you can use two methods:

APP Lookup

Using a securities APP to place orders is very convenient! Simply use a securities APP, find the stock you want to know more about, and check the basic information of that stock to find the dividend yield.

Web Search

In addition to using a securities APP, you can also directly search for the stock or stock code on the web. Based on the search results, such as Yahoo Finance, finance websites, etc., you can quickly find the dividend yield of the stock on these webpages.

Common Questions about Dividend Yield

Q1. Is a higher dividend yield always better?

Not necessarily! While a higher dividend yield indicates a higher proportion of cash dividends distributed by the company, it may also suggest that the company's stock price has decreased, which in turn increases the yield.

Therefore, using dividend yield to make a judgment can only indicate that the company has the potential to be a good investment. It does not necessarily mean that the company is a stable and profitable one.

Q2. What is a reasonable dividend yield?

Generally, the average dividend yield of Taiwan stocks over the past five years is 3.74%. Therefore, if a stock's dividend yield is around 5%, it indicates that the stock's yield performance is excellent and is worth keeping an eye on.

However, if the dividend yield is lower than the interest rate of a bank's fixed deposit (about 2%), then it is not recommended to hold that stock for the long term.

Summary

After understanding what dividend yield is, you can use it to evaluate the dividend return rate, company stability, and compare investment returns between different companies when choosing investment targets to see if they meet your expectations.

If you are not familiar with the calculation method, you can directly use a mobile APP or search online for the dividend yield information of the target stock to help you understand its basic information!

Further Reading: How to Calculate Stock Dividends? What Are Cash Dividends? Essential Information for Beginners