Dividends / Dividend Yield

Apart from benefitting from an increase in stock price, a company might issue cash dividends back to its investors every quarter(3 months).

How to calculate dividends? Benefits and Pitfalls.

Lets understand this with an example below:
Stock Price per share:  206.35
Dividend Yield:  0.95/1.84

The dividend issued per share up till current year is 0.95.

Dividend Yield or just Yield is the annual rate of return for the investor. In this case, its 1.84% ((0.95*4 quarters)/206.35 * 100).

Lets say for instance if you bought 1 share of stock worth $206.35. The annual cash dividend you can expect is 1.84% of $206.35 = $3.79 on your $206.35 of investment.

Some companies offer higher dividends(5-15%) and sometimes can be more attractive for prudent investors. Others might like dividends due to its compounding effect since some brokerages offer the option of re-investing dividends thus increasing your total investment. An investment that re-invests dividends and gradually rises over time can produce handsome returns.

Caution- Dividends can be changed from time to time. So buying a high dividend stock while anticipating a recession could actually turn out to be a bad idea since the company can lower their dividend during the recession to account for their reduced profitability, hence nullifying your anticipated dividend yield.

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