Capital Yield vs Dividend Yield: Difference and Comparison

Capital yield and dividend yield are both a company’s financial ratios, and both show the percentage change in investment. Capital yield is calculated by excluding dividends, and the dividend yield is calculated on market price.

Key Takeaways

  1. Capital yield is the measure of the increase in the market value of an investment, while dividend yield measures the income generated by the investment.
  2. Capital yield is influenced by the demand and supply of securities, while dividend yield depends on the dividend paid by the company.
  3. Capital yield indicates potential capital gains on an investment, whereas dividend yield indicates the returns from dividends paid to shareholders.

Capital Yield vs Dividend Yield

Capital yield refers to the total return on an investment, including capital gains and any income received, such as dividends. For example, if an investment increases by 10% and pays a 5% dividend, its capital yield would be 15%. The dividend yield measures the income received from dividends as a percentage of the investment’s value.

Capital Yield vs Dividend Yield
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Capital gain yield is the proportion of price appreciation on investment. It is calculated as the increase in the price of an investment.

Capital yield formula = (P1-P0)/ P0 * 100

The Dividend yield is one of the financial ratios that measure the proportion of cash dividends paid out to shareholders as per stock price. The dividend yield formula can calculate it:

Dividend yield formula = Annual dividend per share/ Price per share * 100

Comparison Table

Parameters of ComparisonCapital YieldDividend Yield
MeaningIt is the proportion of price appreciation on investment.It is one of the financial ratios measuring the proportion of cash dividends paid to the shareholders.
Formula( Current Price – Original Price) / Original Price x 100Annual Dividend per share / Price per share x 100
ClassificationIt is classified into realized or unrealizedIt is classified into cash, stock, asset, or hybrid dividend.
DependencyCapital Yield depends on the market situation during the liquidation of securities.The dividend yield depends on the senior management’s decision.

What is Capital Yield?

Capital gain yield is the proportion of price appreciation on investment. It is the calculated difference between the current price and the purchase price.

Capital yield formula = (P1-P0)/ P0 * 100

P0= Original purchase price of securities or share

P1= Current market price of securities or shares

Example:

Suppose we purchase a security or share at Rs. 1000 and later sell for Rs. 1250, so the capital gain yield is Rs 250, i.e., 25% of Rs 1000.

Capital yield= (1250-1000)/ 1000 * 100 = 25%

Therefore, investors earn a 25% gain on shares.

On capital gain yield, we can not receive any dividends. Still, the gain between the current price and purchase price of shares or securities is the capital gain yield, but when we have a loss on the share, the mean current price falls below the purchase price, i.e., not a capital yield.

Capital gain can be classified into realized or unrealized, and realized gain is divided into two parts, i.e., short-term gain and long-term gain. In some countries, realized gain is considered a taxable asset.

The Dividend yield is one of the financial ratios that measure the proportion of cash dividends paid out to shareholders as per stock price. The dividend yield formula can calculate it. It is also known as the Dividend price ratio.

capital yield

What is Dividend Yield? 

Dividend yield formula = Annual dividend per share/ Price per share * 100

Example:

Suppose an organization with a share price of Rs 200 declared a dividend of Rs 30 per share. So, the dividend yield ratio per share will be 30/200*100 = 15%.

Therefore, an investor would earn a 15% dividend on shares.

An organization with a high dividend yield does not keep a handsome portion of the profit as retained earnings. A share with a high dividend yield is a good option for investment.

The Dividend varies from organization to organization because the mature organization provides a high dividend yield. Still, the fast-growing organization does not offer any dividends because it’s better to reinvest its profit for the growth of an organization.

The high or low dividend yield does not indicate the nature of the organization, i.e., good or bad.

dividend yield

Main Differences Between Capital Yield and Dividend Yield

  1. The Dividend yield is the profit percentage given by an organization to its investor, and capital gain yield is the profit earned while selling shares or securities.
  2. Investors do not control the Dividend yield. It controls by senior management, but investors hold the Capital gain yield.
  3. The Dividend yield depends on senior management’s decision, but the Capital yield depends on the current market situation.
  4. The organization pays the Dividend yield according to these policies, which is part of the company’s profit. Capital yield is realized on the liquidation of securities on the market.
  5. Dividends can be distributed periodically, and less investment is required. Capital yield happens once in the lifetime of an investment, and a significant investment is required for a handsome return.
References
  1. https://www.sciencedirect.com/science/article/pii/0304405X74900063
  2. https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-1082.00082

Last Updated : 11 June, 2023

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