How to Value Shares (2)

Dividend yield

Dividend yield gives an indication of the investor’s return for holding the share.

It is obtained by dividing dividend per share by the current market price of the share.

Dividend per share is the total dividend paid in the most recent twelve months divided by the total outstanding shares.

Dividend yield is expressed as a percentage.

Let’s assume, for example, the dividend paid by company ‘A’ in the most recent twelve months total £4 million and there are 4 million shares outstanding.

Let’s say the current market price of the company is £20.

The dividend per share is £4million/4 million, which is £1 per share.

The dividend yield will thus be given by (£1 divided by £20) times 100, which is 5%.

This figure 5% means that the investor can expect to earn a return of 5p for every pound he invests in the share.



By David Opoku