The dividend is the percentage of the annual profits of the company given to the stockholders or shareholders by the board members. The dividends are declared in the percentage format using the par value or market value of the share. The dividend yield and dividend percentage are calculated using different share values to evaluate the financial condition and attract investors.
Dividend Yield vs Dividend Percentage
The main difference between the dividend yield and dividend percentage is that dividend yield is measured using the par value of the share, and the dividend yield is measured using the current market value of the shares. Dividend percentage is declared either quarterly or half-yearly, whereas dividend yield is distributed once a year.
The dividend yield is used to measure the current market price of the company’s share that is given to the shareholders. It is represented in percentages to help investors analyze the risk of investing in the company. The dividend yield is calculated on the paid dividends in a year against the market price.
On the other hand, the dividend percentage is also termed as rate or dividend, or simply dividend is paid either quarterly or half-yearly, or annually to the shareholders by dividing the dividend per share value with the earnings of the company. The dividend percentage is commonly used by the company to divide the shares of shareholders from the profits.
Comparison Table Between Dividend Yield and Dividend Percentage
| Parameters of Comparison | Dividend Yield | Dividend Percentage |
| Definition | It is the percentage of overall dividends paid to the shareholders. | It is the percentage dividend per share to the shareholders. |
| Share value | Dividend yield uses the current price of the company’s share in the market. | Dividend percentage uses the nominal or face value of the company’s share. |
| Results | It gives the expected rate of return on the shares. | It gives the amount paid on each share to the shareholder. |
| Payment time | It is paid annually to the shareholders. | It is paid quarterly, or half-yearly, or annually. |
| Factors Affecting | The dividend rate and the current market price affect the dividend yield. | The face value and the net profit of the company affect dividend percentage. |
What is Dividend Yield?
Some organizations raise capital by selling their stocks to public investors. They raise funds to start a new project or invest in current business operations. In return for the investment, the company gives an amount of profit earned to the shareholders or investors. The dividend yield is expressed in the percentage of the net profit that a shareholder gains from the company after investing capital.
Dividend yield shows the financial condition of the organization and helps investors understand the risks and profit in investing in a company. The dividend yield shows the expected return on investments to the investors in a year. It is similar to the interest rate on the capital given to the investor for taking risks in investing in a particular company. The board members of the company calculate the dividend yield by dividing the paid dividends in a year with the current market price of the company’s stocks to attract new investors.
Usually, investors invest in the company with higher dividend yields as higher dividends give more profit returns. However, the dividend yield does not guarantee the security of the investments. The company with a higher dividend yield results in to change in dividends. The dividend yield influences the volatility of the stock prices.
What is Dividend Percentage?
The dividend percentage or simply a dividend is the fraction of the amount from the net profit shared among the shareholders of the company. The dividend is expressed per share using the face value of the share. It is distributed among the shareholder either quarterly or annually based on the compliances of countries and profits earned by the company.
The dividend percentage is estimated by dividing the dividend per share by the current face value of the share. The dividends get influenced by factors like liquidity, availability of funds, profitability, growth of company, industry type, market condition, ownership, and tax effect. The dividends are paid to the shareholders to retain them for a long time and attract new investors to raise capital in the company.
The dividend percentage helps the financial manager to make effective dividend decisions. The increase in dividend percentage will increase the wealth of the shareholders and also the market value. The dividend percentage depends on the earnings, and if the company fails to earn the dividends, then its performance in the market goes down.
Main Differences Between Dividend Yield and Dividend Percentage
- The dividend yield is the overall annual percentage of returns on investments paid to shareholders, whereas the dividend percentage is the percentage of the amount paid quarterly or half-yearly to the shareholders.
- The prevailing market price of the share is used in dividend yield prediction, and the face value of the company’s share is used in dividend percentage calculation.
- The percentage of dividend yield depends on the dividend rate. That is, the dividend yield increases with an increase in dividend rate and vice versa.
- The dividend yield shows the expected return on shares, and the dividend percentage shows the expected amount on every share of the investor.
- The dividend yield is calculated on overall dividends shared with the investors, and dividend percentage gives percentage profits on each share to the investor.
Conclusion
Business organizations use a dividend policy that contains guidelines to measure and divide the dividends among the shareholders. The dividend yield and dividend payout ratios are the two methods mostly used by the companies to measure the dividends. The dividend yield and dividend percentage help the company to attract new investors and at the same time retain the old investors.
References
- https://www.researchgate.net/publication/323392193_A_Study_on_the_Investment_Performance_of_High_Dividend_Yield_Stocks_With_Reference_To_Nifty
- https://www.researchgate.net/profile/Md-Zahangir-Alam/publication/314573369_Dividend_Policy_A_Comparative_Study_of_UK_and_Bangladesh_Based_Companies/links/5a994d430f7e9ba429780677/Dividend-Policy-A-Comparative-Study-of-UK-and-Bangladesh-Based-Companies.pdf