The formula for stock dividend yield is (most recent annual dividend / current stock price). For example, (RM 1 / RM 20) x 100% = 5% dividend return
What is a good dividend yield on a stock?
The answer varies depending on the current time deposit (FD) rate. If the FD (risk-free) rate is 8% per year, then a dividend yield of no less than 9% per year is considered good. It must be correlated to this; assuming the FD rate is 2.70%, then a stock dividend of 3% or more is good.
What is dividend yield?
Usually expressed as a percentage, it is the dividend per share divided by the share price per share.
The dividend yield is a calculation of the return on investment (shares), considering only the return in the form of the total annual cash flow declared by the listed entity company for the year
Unlike preferred shares, common shares (aka “common stock”) do not have a required dividend.
Instead, dividends paid to common shareholders are declared by the company’s management when available, usually in relation to the company’s earnings.
Dividends declared in the past should not be considered an indicator or expectation of future dividends; in fact, they may not even be available at all.
Dividend Yield Formula (Calculation)
The general formula for dividend yield: [most recent full year dividend / current stock price]
For example, [RM 1 / RM 20] x 100% = 5%
This is commonly used to calculate trailing dividend yield.
The trailing dividend yield represents the percentage of dividends paid in the previous period (usually one year). The dividend yield for the past twelve months, abbreviated as “TTM”, includes all dividends paid in the previous fiscal year to calculate the dividend yield.
While trailing dividends can be indicative of future dividends, it can be misleading because it does not take into account increases or decreases in dividends, nor any special dividends that may or may not be declared in the future.
In contrast, a forward dividend yield is a forecast of a stock’s future dividend yield. It may come from analysts’ estimates or simply from the company’s guidance.
It is calculated by taking the first quarterly or semi-annual dividend payment and annualizing it.
That number is then divided by the current stock price.
In other words, if the first quarter dividend is 5 cents and the current share price is $10 per share, the forward dividend yield would be (.05*4)/10= 2%.