A big number can fool you
Two companies both announce a dividend. One sounds generous, the other modest. But the headline dividend alone does not tell you which is the better deal for your money — because it ignores how much you had to pay for the share in the first place. To compare fairly, investors use one simple number called the dividend yield. Once you understand it, you will never be fooled by a flashy announcement again.
What is dividend yield?
Dividend yield answers a simple question: for every taka I put into this share, how much cash am I getting back each year as dividend? It turns the dividend into a percentage of the price you pay, so you can compare any two companies on equal footing — and even compare a share against the return you would get from a bank deposit.
How to work it out
The formula is gentle: yearly cash dividend per share, divided by the current share price, times 100. Say a share costs 100 taka and pays a 5 taka cash dividend in a year. That is 5 divided by 100, times 100 — a 5% yield. If another share also pays 5 taka but costs 200, its yield is only 2.5%. Same dividend, very different value, because the price was different.
What counts as a good yield
- A steady yield in the mid single digits is often a sign of a stable, paying company
- Compare the yield to what a safe bank deposit would give you over the same year
- A company that pays a similar or growing dividend year after year is more reassuring than a one-time big payout
- Always look at several years, not just this year's number
The trap of a yield that looks too high
If a yield looks unusually high — far above everything else — be careful rather than excited. A sky-high yield often happens because the share price has crashed, which drags the percentage up. It can be a sign that investors have lost faith in the company. A very high yield can also be a one-off special dividend that will not repeat. When something looks too good, ask why the price fell before you celebrate the yield.
Do not confuse the dividend with the yield
Remember the difference. The dividend is the cash amount the company pays per share. The yield is that cash measured against the price you pay. A company can raise its dividend, but if its share price rises faster, the yield can still drop. As a buyer, the yield is what tells you the real income value of putting your money in today.
How to use yield when picking stocks
If your goal is regular income, lean towards companies with a healthy, steady yield and a long habit of paying. If your goal is growth, you might accept a smaller yield from a company reinvesting to expand. Either way, treat yield as one clue among many — pair it with the company's profit, debt, and overall health before you decide. A good yield on a weak company is not a bargain.