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Sunday, May 22, 2011

Dividend yield- the ratio which gives solace to risk-averse investors

As name implies, Dividend Yield gives the return received as dividend on a share.
This return is calculated on LMP (last market price) and has nothing to do with the face value.
What is important to note is Companies always declare dividend on the face value.
Dividend yield = annual Dividend received*100/CMP
In simple words, dividend yield gives the percentage return on the price at which an investor bought the share.
Recently Hero Honda declared special bonus of 5500 % that means on the face value of hero Honda which is Rs. 2, dividend comes to be 110 Rs. Per share.
Now LMP of Hero Honda was 1808 on BSE, so return of Rs. 110 on 1808, comes out to be whopping 6.08 % that is 2.08 % more than what banks savings accounts give.
So investor may be tempted to put his money in Hero Honda stock instead of saving account, but wait- there is a catch.
Here 5500 % dividend includes a 4000 % of silver jubilee dividend and no need to say
you shall not get such hefty dividend every year.
For past many years hero Honda has been giving annual (calendar year) return around 1000 percent, so practical dividend yield comes around 1.1 percent.
With present market valuation it is difficult to get high dividend yield value stocks,
In later posts, I shall give the list of high dividend yield stocks.

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