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# Dividend Yield Ratio

## Dividend Yield Ratio

Dividend yield is expressed as an annual percentage and is calculated as the company’s annual cash dividend per share divided by the current market price of the stock. This ratio is important for those investors who are interested in the dividend income.

## How to calculate Dividend Yield Ratio?

It is calculated as follows: When shareholder purchases the shares in the secondary market, there is a difference between his yield (rate of return) and dividend declared by the company because he calculates dividend per share as follows: rate of dividend/paid up value of shares. Then he calculates yield.

For example, ABC company declares 20% dividend and its share price is of Rs. 10 paid up and the market price of which is Rs. 16 then the yield will be calculated as follows: The effective earning rate to the investor in equity shares is 12.5% instead of 20% as declared by the company.

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