Term:DIVIDEND YIELD [DY]

Dividends per share expressed as a percentage of the current market price. For example, if a company pays a dividend of R10 000 and it has 10 000 ordinary shares in issue (sold to the public) then the dividend per share will be 100 cents. If the current market price is 2 000 cents per share, then the dividend yield will be 5%. This shows that if you bought the share at its current price, and it continued to pay the same dividend you would be receiving a 5% return per annum. Obviously, the higher the share’s price the lower the dividend yield and vice versa. You need to bear in mind that while share prices change every trading day, dividends change only twice a year when interim and final dividends are declared. You can see a chart of the dividend yield for any share in ShareFriend by clicking the right mouse button when you are in the chart and then clicking on “yields” and selecting “dividend yield”. Consider the following chart of Standard Bank’s price (top) and dividend yield (bottom) since 2010:

dividend yield

Standard Bank Share Price vs Dividend Yield

A good strategy is to look for high-quality, blue-chip shares, like Standard Bank, which are on a dividend yield of around 5% or more. The high probability is that they may be under-priced. From the chart above you can see that this has happened to Standard Bank only once during the 8 years displayed – and it certainly would have been a good moment to buy it.

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