Dividend Yield vs Dividend Payout: Difference and Comparison

In the share market term, the dividend is the money a company has to pay its shareholders from its profits. It is a kind of reward to shareholders for investing in any company.

And Dividend Yield and Dividend Payout are two different terms related to companies and shareholders’ dividends.

Key Takeaways

  1. The dividend yield is the ratio of the annual dividend payment to the current share price. In contrast, dividend payout is the total dividends paid to shareholders over time.
  2. The dividend yield calculates the return on investment, while the dividend payout provides information on how much a company pays its shareholders.
  3. High dividend yields attract investors seeking income, while high dividend payouts indicate that a company is returning a large portion of its profits to shareholders.

Dividend Yield vs Dividend Payout

Dividend yield represents the annual dividend payment shareholders receive relative to the share price, expressed as a percentage, reflecting the investment’s income-generating ability. The dividend payout ratio indicates the proportion of a company’s earnings paid out as dividends, showing how much profit is being returned to shareholders versus reinvestment.

Dividend Yield vs Dividend Payout 1

Dividend Yield is the percentage of the amount that an organization is giving dividends on each share compared to the market value of that share.

It depends on the board of directors’ decision and is declared quarterly, half-yearly, or annually. In simple language, it tells about the amount a shareholder will get from the company.

Dividend Payout is the percentage of the amount a company pays to its shareholders from the profit it earned. It depends upon the profit the organisation earns in that financial year.

It is a part of the profit shared by the organization with its shareholders.

Comparison Table

Parameters of ComparisonDividend YieldDividend Payout
DefinitionIt is the ratio of dividends per share to the market value of that share.It is the ratio of dividends per share to earnings per share.
Formula(Annual Dividend per Share / Market value of share) × 100(Annual Dividend per Share / Earning per share) × 100
UseIt is used to find out the amount that a shareholder will get.It is used to determine what part a company pays from its profit.
CompareIt compares dividends to actual market price.It compares dividends to actual profits.
BenefitsIt can be either beneficial or bad for investors if it increases or remains the same.It benefits investors but harms the company if its value increases.

What is Dividend Yield?

Dividend Yield is a financial ratio denoted in percentage that shows how much dividend is paid by a company on a share for the market price of that share. It can be calculated by taking the ratio of dividends per share to the market price of that share.

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The increase in the dividend yield percentage always does not indicate a positive sign. The outcome of increased dividend yield could be due to a lower stock price, which is unsuitable for investment.

It helps investors to take steps for investment in an organization.

It can calculate an investor’s earnings by taking the dividend price declared by the organization last time. It is their potential income, which can fluctuate according to market conditions at the time of payout.

Hence, the investor must know the market risks and not depend on a high dividend yield.

It can be calculated very quickly by the company’s given portfolio.

For example, If a company’s stocks sell at $20 and pay $2 as a dividend for each share to its shareholders, using the above-discussed formula, we can find that the dividend yield of this share is 10% which is a high-yielding stock.

dividend yield

What is Dividend Payout?

Dividend Payout is a ratio that shows how much dividend a company gives its shareholders from its earned profits. It can be calculated by taking the percentage of dividends per share to gain from that share.

It ranges from 0% to 100%. 0% means the company pays nothing to its shareholders as a dividend, and 100% means that the company pays all its profit as a dividend to its shareholders.

As discussed, it is between 0% to 100%, but sometimes it can also be harmful when the company’s net income becomes negative.

Developing companies tend to have less dividend payout than mature companies as they give fewer dividends because they need to keep profits to re-invest to grow their company.

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Dividend Payout is related to Retention Ratio, as dividend payout is profit given to investors, but retention ratio is profit kept for re-investing.

A higher Retention Ratio means a lower Dividend Payout, but it ensures company growth, resulting in a higher dividend payout in the future.

So while investing, one should pay attention to both aspects because a low dividend payout can pay them a higher payout ratio. Still, a higher dividend payout can lead to a null dividend payout in the future.

Main Differences Between Dividend Yield and Dividend Payout

  1. The main difference between Dividend Yield and Dividend Payout is that a dividend is a financial ratio expressing how much dividend an investor gets. On the other hand, a Dividend Payout is a financial ratio representing how many parts of profit a company pays as a dividend.
  2. Dividend Yield is the ratio between the dividend per share and the share’s market price. On the other hand, Dividend Payout is the ratio of dividend per share to the earning per share.
  3. A higher Dividend Yield can also be lost to investors, whereas a Higher Dividend Payout always gives more dividends to investors.
  4. The dividend yield value can never go below zero. On the other hand, the Dividend Payout value lies mainly between 0 to 100%, but it can also go below zero.
  5. Dividend Yield value depends on the market value of the share, whereas Dividend Payout value depends on the profit of organizations and retention ratio.
References
  1. https://www.sciencedirect.com/science/article/pii/0304405X74900063
  2. https://journals.sagepub.com/doi/abs/10.1177/0148558×9200700207

Last Updated : 11 June, 2023

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17 thoughts on “Dividend Yield vs Dividend Payout: Difference and Comparison”

  1. This article is really helpful for investors who are trying to grasp the idea of dividend yield and dividend payout. The breakdown of each concept is very informative and insightful.

    Reply
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  5. The article provides a very clear and concise explanation about dividend yield and dividend payout, making it easy to understand these complex financial concepts.

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  6. The comparison table presented in the article is an excellent way to differentiate between dividend yield and dividend payout. Both novice and seasoned investors will find this very useful.

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    • It’s interesting to see how different aspects of a company’s finances are broken down in this article. Very thought-provoking.

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    • The article’s explanation of the benefits of dividend yield and dividend payout is quite enriching. It adds a layer of understanding to these financial metrics.

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  7. Understanding the difference between dividend yield and dividend payout is crucial for anyone looking to invest in stocks. This post does a great job of explaining these concepts.

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  8. The article’s thorough explanation of how to calculate both the dividend yield and the dividend payout greatly enhances the understanding of investors in dealing with these metrics.

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    • The information about developing companies having lower dividend payout and needing to retain more profits for reinvestment is definitely an eye-opener.

      Reply
    • The examples used to outline how to calculate dividend yield and dividend payout make the concepts crystal clear for potential investors.

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  9. The commentary on the potential risks of relying too heavily on high dividend yields in this post is certainly a reality check for many investors. It’s good to be aware of this perspective.

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