Difference Between Capital Yield and Dividend Yield (With Table)

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

Capital Yield vs Dividend Yield

The difference between Capital yield and the Dividend yield is that capital yield is the price appreciation on investment, and the Dividend yield is the proportion of dividend paid out to shareholders as per stock price. 

Capital gain yield is the proportion price appreciation on an investment or rise in the price of common stock. It is calculated as the increase in the price of an investment. Capital yield is calculated by excluding dividends paid.

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. It can be calculated by the dividend yield formula. It is also known as the Dividend price ratio.

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

Comparison Table Between Capital Yield and Dividend Yield

Parameters of ComparisonCapital YieldDividend Yield
MeaningIt is the proportion price appreciation on an investment or rise in the price of a stock.It is one of the financial ratios that measure the proportion of cash dividends paid out to the shareholders.
Formula( Current Price – Original Price) / Original Price x 100Annual Dividend per share / Price per share x 100
Return on Investment (ROI)It receives the gain on current market price and purchases price. It does not receive any dividend.On dividend, yield investors receive dividend as a return.
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 price appreciation on an investment or rise in the price of common stock. It is the calculated difference between the current price and purchase price. Capital yield is calculated by excluding dividends paid.

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 securities or share at the price of Rs. 1000 and later sold 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, investor earn 25% gain on share.

On capital gain yield, we can not receive any divided, but 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, mean current price fall below the purchase price, i.e., not a capital yield.

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

What is Dividend Yield? 

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

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

Example:

Suppose an organization with a share price of Rs 200 and 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.

The organization with a high dividend yield does not keep a handsome portion of the profit as retained earnings. Share with a high dividend yield is a good option for investment. Shares or securities with high dividend yield are tax-free in the hand of investors because dividends are tax-free assets.

The Dividend varies from organization to organization because the mature organization provides a high dividend yield, but the fast-growing organization does not provide any divided 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.

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. The Dividend yield is not controlled by investors. It controls by senior management, but the Capital gain yield is controlled by investors.
  3. The Dividend yield depends on the decision of senior management, but the Capital yield depends on the current market situations.
  4. The Dividend yield is paid by the organization according to these policies, and it is part of company profit, but the Capital yield is realized on liquidation of securities on the market while the price of securities increases.
  5. Dividend can be distributed on a periodical basis, and less investment is required for investment, but Capital yield happens once in the lifetime of an investment, and a large investment is required for a handsome return.

Conclusion

To calculate the total gain or return on investment, investors combine both capital gain yield and dividend yield. As per the above examples, investors get 25% + 15% =40% return on investment(ROI), and both are the tool to generate income for investors.

The amount of dividend yield and capital yield depends on the market situation and attracts some taxes. Both dividend and capital yield helps in earn money in the long term and helps in financial planning. 

If you are a risk-taker and want to invest, make an investment on capital yield because it totally depends on the current market situation, and you are independent to take a decision.

So, while we invest in any one of them, keep these points in mind.

References

  1. https://www.sciencedirect.com/science/article/pii/0304405X74900063
  2. https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-1082.00082
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