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What is a 'dividend yield'?

Wednesday 23rd January 2002 1 Comment

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Q: How does a company decide what kind of dividend to pay, and what are dividend yields?

A: Most companies pay dividends - usually once every six months - based on profitability. Companies may also have what they call a 'dividend policy', which means they promise to pay a certain percentage of profits out as dividends. However companies are not obliged to pay dividends and, depending on other uses for their profits, may not pay a dividend at all. Instead they may use the funds for expansion, buying other companies or paying off debt.

A company's dividend yield is just one of the tools investors use to compare different stocks. Yields are always based on historic information, and are often quoted in share tables in newspapers. To work out the dividend yield simply divide last year's dividends by the price you buy the shares and multiply by 100.

For example, if Telecom shares are at $7.50 and last year it paid out $0.44 in total dividends (four quarterly dividends of 11 cents), then the dividend yield will be: $0.44 divided by $7.50 multiplied by 100 = 5.86% tax paid. Dividends are normally received with imputation credits attached as the company has already paid the tax on its profit.

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Comments from our readers

On 8 March 2014 at 10:02 pm Dividendinvestor said:
You are right that usually companies pay dividends to their shareholders once in a year. Amount of dividends depends upon benefit of company. I usually prefer to access as it provides me full details about dividends and latest dividend announcement.
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