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Dividend Yield = Gross Dividend per Share / Share Price

Dividends are usually periodic cash payments to shareholders out of a company’s earnings or earnings reserve.

In corporate finance theory, the total returns you get from investing in a share = Income Return + Capital Return

where Income Return is your dividend component, while Capital Return is the increase in value of your share price. Therefore

Share Investment Return = (Dividend per Share + Change in Share Price) / Purchase Price

For example, if you bought Petronas Dagangan (PETDAG) at RM8.45 on 10-Aug-07 with the expectation that you will receive 30 sen in dividends over the coming year and that the share price will grow to RM9.50, your projected return is:

(0.30 + 1.05) / 8.45 = 16%

Your expected Dividend Yield (or Income Return) is 3.6% while your expected Capital Return is 12.4%.

You can then compare this with other alternative investments such as Fixed Deposit or other shares/bonds, and make an evaluation whether this is an acceptable return taking into account the associated investment risks.

Note

1. Share Investment Return calculation is a projected or forecast figure.
2. Dividend Yield calculation excludes Special Dividends