Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is expressed as a percentage and is a useful metric for investors looking for income from their investments.
How is Dividend Yield Calculated?
The formula to calculate dividend yield is:
Dividend Yield = (Annual Dividends per Share / Price per Share) x 100
Where:
- Annual Dividends per Share is the total dividends paid to shareholders over a year divided by the number of outstanding shares. This is basically adding up the last four quarters of dividends paid out.
- Price per Share is the current market price of the stock.
For example, if we take Enbridge, if we look at the last four quarters on Dividend History, we see that it paid $3.6875 in dividends per share in the last year, which is basically adding up the last four quarters.
Annual Dividends Per Share = $0.915 + $0.915 + $0.915 + $0.9425 = $3.6875
From this, we can calculate the dividend yield by taking the annual dividends per share and dividing it by the current stock price.
Enbridge Dividend Yield = ($3.6875 /$61.01) x 100 = 6.44%
This means that for every dollar invested in Enbridge, an investor would earn 6.44 cents in dividends each year.
I used the latest information to actually show that it can be a bit messy to calculate the dividend yield, but it is still not hard to do and understand.
We will look into what this means for investors when a investing in a great company with a high dividend yield in the future post.
Comments