Dividend yield in stocks
When you read a stock analysis you often come across the term dividend yield.
What is a dividend yield in stocks? Dividend yield is basically the dividend compared to the share price.
If a stock price is 100$ and pays out 1$ the dividend yield percentage is 1 %. If the share price goes down to 50$ the yield rises to 2 %.
In that way the dividend yield tells you how much of your investment you get back in dividends, if you buy at the current share price.
Dividend yields are as volatile as the stock price
Yield on initial investment
As a long-term investor as my self, the current yield is only interesting the moment you buy a stock. I prefer a stock which yields from 3-8 % – higher it is often a higher risk, and less aren’t interesting.
When I own a stock, I like to calculate my yield on my initial investment. I haven’t been investing in a lot of years, so I will have to use a made up example.
If I bought 100 shares of Microsoft in January 2010 I got a dividend yield of 1,7%
I would have spent 100 * 30,66 $ = 3066 $
In 2010 Microsoft paid out 0,13 $ per share per quarter. In 2018 that number was 0,42$ per share per quarter.
That means the yield in 2018 on the initial investment was (0,42*4) / 30,66 = 5,47%
Further more you would have collected dividend in all the years equal to 992$ !!!!
If you wan’t to buy a Microsoft share today, the dividend yield for Microsoft is still under 2 %: Annual dividend 1,84 / Stock price 107 $ = 1,72 %
This shows how much dividend growth can do for you and how important it is to find solid companies and keep the stocks for many years.