Dividend Yield Ratio:

Definition:

Dividend yield ratio is the relationship between dividends per share and the market value of the shares.

Share holders are real owners of a company and they are interested in real sense in the earnings distributed and paid to them as dividend. Therefore, dividend yield ratio is calculated to evaluate the relationship between dividends per share paid and the market value of the shares.

Formula of Dividend Yield Ratio:

Following formula is used for the calculation of dividend yield ratio:

Dividend Yield Ratio = Dividend Per Share / Market Value Per Share

Example:

For example, if a company declares dividend at 20% on its shares, each having a paid up value of $8.00 and market value of $25.00.

Calculate dividend yield ratio:

Calculation:

Dividend Per Share = (20 / 100) × 8

= $1.60

Dividend Yield Ratio = (1.60 / 25) × 100

= 6.4%

Significance of the Ratio:

This ratio helps as intending investor is knowing the effective return he is going to get on the proposed investment.

You may also be interested in other articles from “financial statement analysis” chapter:

1. Horizontal and Vertical Analysis
2. Ratios Analysis
3. Horizontal Analysis or Trend Analysis
4. Trend Percentage
5. Vertical Analysis
6. Accounting Ratios Definition, Advantages, Classification and Limitations:
7. Gross profit ratio
8. Net profit ratio
9. Operating ratio
10. Expense ratio
11. Return on shareholders investment or net worth
12. Return on equity capital
13. Return on capital employed (ROCE) Ratio
14. Dividend yield ratio
15. Dividend payout ratio
16. Earnings Per Share (EPS) Ratio
17. Price earning ratio
18. Current ratio
19. Liquid/Acid test/Quick ratio
20. Inventory/Stock turnover ratio
21. Debtors/Receivables turnover ratio
22. Average collection period
23. Creditors/Payable turnover ratio
24. Working capital turnover ratio
25. Fixed assets turnover ratio
26. Over and under trading
27. Debt-to-equity ratio
28. Proprietary or Equity ratio
29. Ratio of fixed assets to shareholders funds
30. Ratio of current assets to shareholders funds
31. Interest coverage ratio
32. Capital gearing ratio
33. Over and under capitalization
34. Financial-Accounting- Ratios Formulas
35. Limitations of Financial Statement Analysis

Other Related Accounting Articles:

• Fixed Assets Turnover Ratio
• Dividend Payout Ratio
• Return on Equity Capital (ROEC) Ratio
• Current Assets to Proprietor’s Fund Ratio
• Return on Shareholders Investment or Net Worth Ratio
• Over trading and Under Trading
• Proprietary Ratio or Equity Ratio
• Financial Accounting Ratios & Formulas
• Fixed Assets to Proprietor’s Fund Ratio
• Debt Service Ratio or Interest Coverage Ratio