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.