This video will teach you what dividend yield is, how to calculate it and why it's important. Dividend yield is the dividend, relative to the price of the investment.
What are dividends? Check out the previous video: https://www.youtube.com/watch?v=8s_8O99dNC0
Didn't hear me properly? This is what I was saying:
Today we're going to be learning what dividend yield is. We already know what a dividend is from the previous video, now we just need to know the yield part. If you don't know what a dividend is, just click on the word dividend to watch the previous video, and then come back to this video.
Let's use the hypothetical company from the last video, Soni's Shawarma. Soni's Shawarma is a restaurant chain that has thousands of restaurants across the country, and obviously, sells shawarmas.
Soni's Shawarma pays a quarterly dividend of $0.25. Which means in a year, it pays a total dividend of a dollar, since 25 cents every 3 months adds up to a dollar every year.
So we know how much Soni's Shawarma pays in dividends for every share that we own, but we don't know how much it costs to buy one share of Soni's Shawarma. What if I told you that one share of Soni's Shawarma costs $1000. Yes, $1000 to buy 1 share of Soni's Shawarma, and it only pays us one dollar in dividends every year. What if I told you that one share of Soni's Shawarma costs only $20. $20 for one share, and it pays us one dollar in dividends every year.
Which one would you rather pick? I would pick the $20 share that pays me $1, instead of the $1000 dollar share that pays me $1. Why, because it has a greater yield! Yield is simply the dividends we get, relative to the price of the share. That's not a dictionary definition, it's my definition for this case. So now let's calculate the yield of these two options, let's start with the $1000 share.
If one share of Soni's Shawarma costs $1000 and In one year, it gives us one dollar, the annual dividend is one dollar. So to calculate the yield, we need to take the dividend, and divide it by the price. So the dividend of one dollar, divided by the price of $1000, equals 0.001, which can also be expressed as 0.1%. So the dividend yield in this case is 0.1%. Now let's move on to the next case.
If one share of Soni's Shawarma costs $20 and in one year, it gives us one dollar, the annual dividend is one dollar. Just like before, to calculate the yield, we take the dividend and divide it by the price. So the dividend which is one dollar, divided by the price, which is $20, equals 0.05, which is another way of saying 5%.
So that's dividend yield, the dividend relative to the price. The $20 share has a yield of 5%, that means I'll be getting 5% of the money I paid every year. It means 5% of the price, will be paid to me in dividends. With the $1000 share which has a yield of 0.1%, it means I'll be getting 0.1% of the money I paid, every year. It means 0.1% of the price, will be paid to me in dividends.
So which one would you rather pick? Would you rather have your dividends equal 5% of the price you paid, or would you rather have them equal only 0.1% of the price you paid. I would rather have them equal 5% of the price I paid, because I get more money relative to the price I paid. If we're only looking at dividends, paying $20 to get an annual dividend of $1, is better than paying $1000 to get that same annual dividend of $1.
Remember, stock prices change every day, so that means, dividend yield will also change every day. If its $20 to buy a share that has an annual dividend of $1, it has a yield of 5%. If tomorrow, the price of that same share goes up to $21, then we divide 1 by 21 to get a yield of 4.76%. So as prices change, so does the yield, as dividends change, so does the yield.
So now you know what dividend yield is, how to calculate it, and why it's important. If you liked this video, please make sure to hit that subscribe button. Thank you.
Not sure if you're referring to how much you are getting paid in dividends (which is a dollar amount) or dividend yield (which is a %).
The amount of dividends you get paid ($) are completely dependant on the company. They choose how much they want to give to their shareholders. If the market crashes and stock prices fall and they still want to pay the same dividend, then you aren't getting MORE dividends.
This only means that your dividend yield will go up because the formula is dividend per share divided by price per share. So if your dividend stays the same and price goes down (since the market crashes), then your yield goes up. Again, this doesn't mean you're getting richer. It just means that your dividend is worth more for the price of the stock.
I hope this helps Jeffry. Feel free to reach out again if you need more clarification! More than happy to help 🙏
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first wanna say thanks for the video.
second i have question: the dividend yield of AT&T higher than AAPL.
but AAPL pay 0.77 cent per quarterly and AT&T pay 0.51 cent.
what can i understand from this case?
thanks in advance
that the money you're getting in dividends is higher relative to the price you paid for the share. So in your case if the dividend yield of Apple is higher than AT&T, what you get in dividends from Apple relative to the price you paid for Apple stock is higher than what you get in dividends from AT&T relative to the price you paid for AT&T stock
@Game Awesome Yes, this guy's got it right here. And meanwhile, if you tried the other option, you'd spend the entire $1000 to buy one share, which would only give you $1 dividend every year. So it's probably better to spend $1000 and get $50 a year as opposed to spend $1000 and get $1 a year
GameStop is paying that much of a dividend because the company is in big, big trouble. They have no growth and no real future, and most of their revenue goes into paying their dividend to keep their major shareholders from dumping their stock. This means they are not re-investing in the company or getting ready for the future. If any stock pays above 10% dividend yield, it's probably because they are in trouble. Be careful with high dividend stocks. With dividends, slow and boring is your friend.
Jose Quiñones ahhhh that was the answer I was looking for - set by the board...I’ve been investing for a bit so I understand calculating my own dividend yield and what not, just wasn’t sure how the DISPLAYED dividend yield on a stock was EXACTLY derived but that answered it...thanks!
@MrPretends Your dividend yield is calculated by dividing the amount of dividend you are paid per share by the price per share you paid, times 100. If you buy at different times, you average out the share price and use that. Your exact dividend yield will depend on how much you paid per share (including brokerage fees) and how much they pay in dividend. Since most dividend stocks pay quarterly and some pay monthly, the term used for dividend yield is always a year. A dividend is never a sure thing. It is declared by the board each term, depending on the financial results of the company. In a good month or quarter, they may raise dividend or leave it the same. In a bad month or quarter, they may lower or even cancel the dividend. If you are an active investor, you must constantly be monitoring your investment's performance. If you want simple, you go with an index fund like a Vanguard 500 Aristrocrats ETF, which puts your money into a "basket" of dividend stocks and rebalances as necessary. The risks are lower, but so are the rewards.
Jose Quiñones my question is more of how is it measured regarding the time of the price of the stock. I know it is a yearly yield as almost anything is unless stated otherwise.
Example: dividend yield doesn’t change when the price of a stock fluctuates through out the day (at least not on the exchange I used) if I look at an exchange on January 5th am I looking at the dividend yield that was derived in 2017 based on the closing price? That’s more of what my question means. In other words from what time period is it derived...
Question. I work at home depot 1% of my check goes toward home depot stock and 15% off current price. Any how have already a good amount saved up but I have never got paid (dividends) or anything.. how do I get paid???
Home Depot has paid a dividend every quarter since 1987. The likelihood is that your dividend has been automatically re-invested into the stock every month, which is good by the way. It means you are getting compound interest on your stock (i.e, each dividend grows and starts making more, which grows exponentially). It is like credit card debt, only it is working in your favor. So find out who your brokerage is, take a look, and you might be in for a very nice surprise! However, you don't want to have your entire nest egg in one single stock, so look into taking those stocks and diversifying. You can easily put them into a basket of thousands of stocks called an ETF. You are probably part of a Home Depot 401(k) or something, so see about rolling it over into an IRA at a reputable place like Schwab or Vanguard or the like. Or you can even use an easy app like Acorns! This lets your money grow without paying taxes, and lowers the risk that one day Home Depot makes a huge mistake and all your stocks go to zero. It's your money, so put it to work for you and diversify.
Great video, thanks! You explain everything very easily, I love it :D By the way, I've just come across this article about which ratios investors should focus on before investing https://www.stockmetrix.net/blog/post/070318/5-most-accurate-financial-ratios?t=gauYT#17g, and I think it's pretty helpful. What do you think?
So on Robinhood Procter&Gamble the price is $77 and it list the dividend yield as 3.096. Does that mean 3.096% of the stock price(whatever that was the end of each quarter) was paid out over the last 4 quarters. When they say P&G has increased their dividend every year for several decades they mean it increases each quarter or each financial year or what?
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That's unrealistic because it would mean that the company is paying twice as much as the price for each stock you buy. They simply don't have that kind of money and it is physically impossible for them to pay that much.
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To anyone reading this comment, that has just finished watching this video, I tell you to be cautious and smart with your money. Yes you could find cheap stocks with high dividend yields but, cheaper stocks are normally riskier as they may not come from a well established company. The rewards are higher but you also risk losing it all. Opposed to making a safe investment in a bank. Not to say don't make risks, but make calculated risks. Don't just invest all your money in Sonis shawarma because it has a better dividend yield.
You didn't include the risk that is coming with higher yields. So it's not objective to say that it's smarter to go for the 5% dividend yield. But this is a good example of how dividend yield works. :)
This explains things great on how to align the math to make sense of the percentage. My question is, when I am looking at Nasdaq or any other indexes, how do you find out the dollar amount the percent translates to to then do this math to explain the percentage.
wow Amazing job. You made dividend and dividend yield sound so easy. You should have been my prof in College. I always struggled with Econ and Calc. And here you explain things as if its just a piece of cheese cake :D
I watched two videos of yours and I am hooked.
+Tsvetomir Iliev you don't buy dividends, you buy shares with options on dividends, (the dividend always depends on the results of the company).
You get a dividend if you own a share that pays dividends.
with respect your math is correct. however case on it is not correct your result ended with dividend yield of 0.001 so far nothing wrong but you stated this will be 1% which is not correct. this means you will get $1 for each$ 1000 you invest. if you say 1% it means you will get $1 for each $100 you will invest.
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