- Dividend yield
Dividend yield is the return a shareholder is currently expecting on the shares of a company. It is calculated as follows.
Dividend yield = (Dividend on the share for the year / Current market value of the share) X 100
Shareholders look for both dividend yield and capital growth. Obviously, dividend yield is therefore an important aspect of a share’s performance.
- Earnings Yield
Earnings yield is a performance indicator that is not given the same publicity as earning per share (EPS), Price earning ratio (P/E ratio), dividend cover and dividend yield.
Earnings yield is measured as the earnings per share, grossed up, as a percentage of the current share price. It therefore, indicates what the dividend yield could be if the company paid out all its profits as dividend and retained nothing in the business.
It attempts to improve the comparison between investments in different companies by overcoming the problem that companies have differing dividend covers. Some companies retained a bigger proportion of their profits than others, and so the dividend yield between companies can vary for this reason. Earnings yield overcomes the problem of comparison by assume that all earnings are paid out as dividends.
Earnings yield = Dividend yield X Dividend cover