What is the difference between yield and dividend?

Modified on Mon, 16 Jul, 2018 at 12:35 PM

The dividend, or dividend rate, is the total income an investor receives from a stock or other dividend-yielding asset during the fiscal year. However, stock dividends are often quoted instead, using another figure: dividend yield. The yield is calculated by taking the total annual dividends and dividing that figure by the current share price .

Dividend rates are expressed as an actual dollar amount; for example, Company Y paid out an annual dividend rate of $5. When this dollar amount is quoted in terms of dollar amount per share, it may also be referred to as dividend per share, or DPS. You can see the accounting history of a company's dividend payments in the investor relations portion of most websites.

There are also other kinds of dividends. Some companies choose to pay out dividends in the form of extra stock or even property. Companies may do this when they decide they want to pay out dividends but need to hold on to some extra cash for liquidity or expansion.

Dividend yield is quoted as a percentage rather than a dollar amount. You are more likely to see dividend yield quoted than dividend rate. The initial reason for this makes sense; a company that pays out dividends at a higher percentage of its share price is offering a greater return for its shareholders' investments. It is better to receive $3 in dividends on a $50 stock than $5 in dividends on a $100 stock, because the investor could ostensibly just purchase two of the $50 shares and receive $6 in dividends that way. Dividend yield tells you the most efficient way to earn a return.

Unfortunately, the calculation for dividend yield presents some problems. Dividend yields can vary wildly, so the calculated yield may actually have little bearing on what the future rate of return (ROR) will be. Additionally, dividend yields are inversely related with share price; a rise in yield may be a bad thing if it only occurs because the company's stock price is plummeting.

SSource : Investopedia

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