Business Mathematics and Basic Statistics · Ch 2 — Shares and Dividends
Yield on an Investment
Yield on an Investment
Why yield, not just dividend rate
The declared dividend RATE (e.g. "9%") only tells you what the company pays relative to FACE value — it says nothing about how good an investment the share actually is, because that depends on what the investor actually PAID for it (the market value). Yield answers the real investor question: "as a percentage of what I actually invested, how much do I earn every year?"
The yield formula
where is the dividend rate, the face value, and the market value.
A higher dividend rate does not always mean a better investment
A share of face value ₹10 paying a 12% dividend, bought at a market value of ₹15, yields . A share of face value ₹100 paying only an 8% dividend, but bought CHEAP at ₹80, yields — a genuinely better return, despite the lower headline rate. Yield, computed on what was actually paid, is always the correct basis for comparing two different investment options.
Comparing two options …
The annual dividend income expressed as a percentage of the MARKET VALUE actually paid for the share (not the face value): . The correct basis for …