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Dividend and Dividend Yield

Info by Never Rich Enough | 28/04/2012 at 12:45

Usually a part of the profits of a stock company or a companionship is distributed to the shareholders or the members of the companionship. This is called the dividend.

There are no precise rules for how high a dividend has to be. The amount of the dividend is proposed by the management board and voted on thd shareholders meeting. Usually the amount is based on the profit of the company, but there are also cases in which a dividend is paid from reserves, although the company makes no profit at the current fiscal year.

Dividend Yield

The dividend yield relates the stock price with the paid dividend, because of course it makes a difference whether a stock is 10 € or 100 € if a dividend of 2 € is paid.

We are calculating the dividend yield in this way:

\[\frac{Dividend}{Share Price}*100\]

The dividend yield is one of the classic indicators to evaluate a stock.

Example: We want to determine the dividend yield for a stock which price is currently at 32 € and has paid a dividend of 1.76 €:

\[\frac{1,76}{32}*100=5,5%\]

Therefore, in this case, we have a dividend yield of 5.5%.

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