In terms of money, when a company earns profit, this profit is distributed to the shareholders of the company, who invested money in their company in the first place. These profits are distributed as dividends.
There are also various types and features in a dividend, including the dividend yield.
Key Takeaways
- A dividend represents the portion of profits distributed to shareholders. In contrast, Dividend Yield indicates the annual return on investment received by the shareholders as a percentage of the stock’s current market price.
- A dividend is a fixed amount the company pays its shareholders periodically, while Dividend Yield fluctuates based on the stock’s market price.
- A dividend is an absolute figure and does not consider the stock’s market price. In contrast, Dividend Yield is relative to the stock’s market price and helps investors evaluate the returns from investing in a particular stock.
Dividend vs Dividend Yield
The difference between dividend and dividend yield is that the average of the total payments calculates the dividend let out by the company to its shareholders or investors, and, on the other hand, the dividend yield is calculated by dividing the annual share return of a company to its price.
A dividend is a profit that a company earns, which is distributed among the shareholders or investors of that company. The dividend is calculated as the annual income subtracted from the net earrings.
This is, in short, the reward that a company provides in various forms to its shareholders. The board makes the declaration of the date or percentage of a dividend of directors of the company.
The dividend yield is the measure of cash flow in the form of dividends that are paid to their shareholders by a company according to their share as per the market value.
This is measured by dividing the dividend per share in the market and multiplying the respective result by a hundred. A company producing a high dividend yield will tend to possess a high profit.
Comparison Table
| Parameters of Comparison | Dividend | Dividend Yield |
|---|---|---|
| Meaning | This is said to be the total of the combined payment of the dividend that is expected. | This is stated as the ratio of the annual profit of a company to its net earnings. |
| Formula | Dividend=Annual net income – the change in net earnings | Dividend Yield = dividend / price |
| Function | This means the total number of profits that a company distributes to its shareholders. | This means the ratio of profit paid to shareholders based on the current market price of shares of a company. |
| Main advantage | This increases the returns of a company instead of slowing them down. | It gives a clear view of a company’s intrinsic value. |
| Concept | It is a wider concept. | It is a narrow concept. |
What is Dividend?
A dividend is a profit that a company earns, which is distributed among the shareholders or investors of that company. The dividend is calculated as the annual income subtracted from the net earrings.
This is, in short, the reward that a company provides in various forms to its shareholders. The board makes the declaration of the date or percentage of a dividend of directors of the company.
There is a need for approval by the shareholders of a company to distribute the dividend. A company does not need to pay a dividend. Similarly, a company that initially pays dividends to its shareholders needs not necessarily pay dividends to them when the company is in shortage of cash flow.
The process works in a manner that when a company announces a dividend rate as per from one date to another, then all the members who register for shares paid till that date will be eligible for getting paid their dividend.
The process of giving money is mailed to shareholders within a week or two of the announcement of the distribution of dividends. Sometimes it gets transferred to the bank account directly.
What is Dividend Yield?
The dividend yield is the measure of cash flow in the form of dividends that are paid to their shareholders by a company according to their share as per the market value.
This is measured by dividing the dividend per share in the market and multiplying the respective result by a hundred. A company producing a high dividend yield will tend to possess a high profit.
The date of dividend yield in a company is always measured by computing the average of an entity or an industry to which the respective company belongs.
The companies distribute the dividends to their shareholders into a small portion of their profits, and the remaining that is retained is used for investing back in the business.
A dividend yield is measured as the ratio of a company’s earnings to its price. The dividend yield is also sometimes called a dividend percentage. A company with a high dividend yield stock on a long-term basis is always said to be a good investment option for a person.
Companies that produce high profits relatively do not keep back any profits for retention and reinvestment.
Main Differences Between Dividend and Dividend Yield
- The dividend of the company is stated as the total of the combined payment of the dividend that is expected, and on the other hand, the dividend yield is stated as the ratio of the annual profit of a company to its net earnings.
- The formula for the dividend is annual net income – the change in net earnings; on the other hand, the formula for dividend yield is the dividend/price.
- A dividend means the total number of profits distributed by a company in small portions to its shareholders, and, on the other hand, a dividend yield means the ratio of profit that is paid to shareholders based on dividends as per the current market price.
- The main advantage of giving out a dividend is it will increase the returns of a company instead of slowing them down, and on the other hand, the main advantage of giving out a dividend yield is that they give a clear view of a company’s intrinsic value.
- The board of directors decides on the payment of dividends in a company; on the other hand, the shareholders decide the payment of dividend yields in a company.
- https://www.sciencedirect.com/science/article/pii/0304405X90900496
- https://www.sciencedirect.com/science/article/pii/0304405X74900063
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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