Yield (Rate of Return on Investment) and Brokerage

The dividend rate tells you the return as a percentage of the face value; but an investor really wants to know the return as a percentage of the money actually invested — the yield.

Yield. The yield (or rate of return on investment) is the annual income expressed as a percentage of the amount invested:

For a single share of face value $FV$, dividend rate $r$, bought at market price $MP$ (no brokerage):

So a 10% dividend on a ₹100 share bought at ₹125 yields only $\dfrac{10\times100}{125} = 8\%$ — less than the 10% dividend rate, because the share was bought at a premium (§4). Bought at a discount, say ₹80, the same share would yield $\dfrac{10\times100}{80} = 12.5\%$ — more than the dividend rate. Yield equals the dividend rate only when the share is bought exactly at par.

Comparing investments. Because yield measures the true return on money invested, it is the correct basis for deciding which of two securities is the better buy — the one with the higher yield gives more income for every rupee invested, regardless of which has the higher headline dividend rate (Worked Example 5 shows a lower-rate stock beating a higher-rate one on yield).

Brokerage. A broker charges a small fee — brokerage — on every purchase or sale, usually a small percentage of the market value (or a fixed amount per share / per ₹100 nominal). It changes the effective price:

• On buying: brokerage is added to the market price → $\text{Cost per share} = MP + \text{brokerage}$.
• On selling: brokerage is subtracted from the market price → $\text{Net proceeds per share} = MP - \text{brokerage}$. …