Exploring the Dividend yield

A dividend yield is the amount paid out relative to the share price. A company may decide to pay dividend to shareholders. For example, because it had a good year or because the expectations for the future are positive.

Dividends are then a reward for the shareholder because they have invested in a company. If you receive a dividend, you can calculate the dividend yield. This is the ratio between the dividend paid and the purchase price of a particular share. See the below illustration for exemplary purposes:

dividend yield calculation
the yield calculation

Dividend yield vs Saving interest

It may happen that the dividend yield is higher than the savings interest. However, on the other hand, you run a higher risk with investing than with saving, because you can lose your investment or the price of a share can fall to such an extent that you no longer get what you paid for it.

With savings, you have a much higher degree of certainty that the money saved will actually remain available, but there is a lower compensation in return. The investment portfolio and its composition differ per investor and per situation.

example calculation

There is no formula to use the right composition. What your investment portfolio looks like depends on the risk you are willing and able to run, the goal you have in mind, your investment horizon, and the size of your assets.

You can work with a defensive portfolio where you normally run a relatively little risk. Investments are then mainly made in mature markets and large companies offering stability. Sometimes an offensive portfolio can be chosen, which generally involves relatively higher risk.

How do I calculate the dividend yield?

The dividend yield is calculated as follows: Dividend payout (planned) / purchase price of a share times 100%. Suppose you buy a share for 10 USD. The return that is paid is 0.50 USD. The dividend yield is then (0.5 / 10) x 100% = 5%.
dividend yield

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