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Dividend Yield

The dividend yield ratio allows investors to compare the latest dividend they received with the current market value of the share as an indictor of the return they are earning on their shares. Note, though, that the current market share price may bear little resemblance to the price that an investor paid for their shares. Take a look at the history of a business's share price over the last year or two and you will see that today's share price might be a lot higher or a lot lower than it was a year ago, two years ago and so on.

We clearly need the latest share price for this ratio and we can get that from newspapers such as the Financial Times, The Times, The Guardian and the Daily Telegraph. We can also find the share prices on the Internet.

The formula for the dividend yield is:

It is common for newspapers and others to calculate the dividend yield automatically as part of their offerings. Take a look at the extract from The Times and you'll find the dividend yield figure in the second right hand column, before the P/E ratio.

Here's an extract from The Times newspaper's share page (Source: The Times Newspaper 18 September 2002) together with a few links to some Web sites where we can find share prices. Use them now or later.

Source: The Times Newspaper 18 September 2002.

Web Sites

Here is a selection of Web sites that will find the latest share prices for us: you either need to know the code for the share you are interested in, eg CPW for the Carphone Warehouse and VOD for Vodafone; or you will probably be given the opportunity to search for the code.

• Bloomberg Market Monitor http://www.bloomberg.co.uk/
• Yahoo UK & Ireland Finance http://uk.finance.yahoo.com/
• Reuters http://www.reuters.co.uk/

Since the Carphone Warehouse hasn't paid a dividend recently, we can't calculate its dividend yield: we can, however, for Vodafone. Combine the dividend data for Vodafone and combine it with the newspaper and internet extracts above to determine the dividend yield ... remember, the yield is the yield as at today, or the time of the latest available share price.

Did you get this?

A yield of 1.63% is not that high but there are shareholders who only paid 79.75 pence per share for their investment so their dividend yield is 1.85%; but others have paid as much as 195 pence per share for their shares, so their dividend yield is only 0.75%. We have taken these two prices from the Times newspaper from the last year's highest and lowest prices.

Take a look at the dividend yields of other businesses and see how well Vodafone is doing compared to the average... any company you like, in fact. Here are a few examples.

Source: The Times 18 September 2002.

Source: The Times 18 September 2002.

At the time of writing, dividend yields seem to be rather low. The above examples are representative of the overall market. Still, why would shareholders accept such low yields? The answer is probably that shareholders are more concerned with capital gains, i.e. increases in the share price, rather than the dividend they might receive.

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