Скачать или смотреть DIVIDEND YIELD VS DIVIDEND PER SHARE (IMPORTANT)

This video will change the way some people look at dividends. Honestly, I was the same when I started my investing journey, so I understand how confusing it may be.

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And in this video, we’ll primarily talk about dividend yield. I will present and explain why this metric may not be as perfect and easy as some people think it is.

Dividend yield is the percentage that an investor expects to get back every year from its investments in form of dividends. For example, if dividend yield is 3%, it is pretty natural thing to say, that for every $100 invested, you expect to receive $3 in annual dividends. And here is what’s wrong with this concept.

Dividend yield is a variable, which means that it moves up and down every time share prices change. But dividends itself are fixed amount. Everything becomes much easier once there is an example. So, let’s use everyone’s favorite dividend company AT&T for these purposes. At this very moment AT&T’s annual dividend is $2.08. And the share price is $26.69. In order to find dividend yield, we simply take annual dividend and divide it by share price. Which in our case is $2.08 divided by $26.69 and it equals 7.79% dividend yield.

So, is it safe to assume that AT&T’s dividend yield is 7.79%? Not at all. Like I said before, dividend yield is a variable, and dividends are fixed. Meaning that unless something major happens, AT&T will keep its $2.08 dividend until the end of its fiscal year. But share price will change thousands of times before this year ends. And as soon as it does, dividend yield changes as well. Here is an example. Dividend is the same $2.08. But now, share price increased from $26.69 to $30.69. So, let’s calculate our new dividend yield. The formula is the same, $2.08 divided by $30.69 which gives us 6.78%. 1% decrease comparing to dividend yield at the price of $26.69.

See how it works? The higher the price goes; the lower dividend yield becomes. And the lower share price falls, the higher dividend yield climbs. This also triggers natural stock market protection mechanism. Some amateur investors chase high dividend yields. They see some delusional dividend yields as 15% and they think to themselves: Wow, if I invest all my $10000, I will get $1500 in dividends! And they actually invest in such companies, just because of high dividend yields.

This is what’s so bad about this strategy. Most of the times, they only use yahoo finance or any other financial websites to analyze their companies. But these websites might have delayed updates about suspended dividends. For example, if a company suspended completely its dividends, it may take some time for such websites to reflect the changes. And one of the major reasons why companies might suspend dividends is obviously when things go very bad for them. And when this happens, share prices often just fall of the cliff.

As a result, we see very cheap prices, which bring dividend yields to unthinkable double-digit numbers. And because some financial websites take their time to update the information, it is shown as if these companies are still paying dividends. While in fact, they are already suspended. Just remember. If dividend yield looks too good to be true, probably, it’s not good at all.

ATT has dividend yield of 7%, and this company is well known for always having very juicy dividends. STONKS. Besides, this company is Dividend Aristocrat. Meaning that it has been paying and increasing dividends uninterrupted for 25 years or more. AT&T has been doing it for 36 years so far. So, this company will do everything to keep paying dividends in order to maintain its status. I would even say that 5% dividend yield is already pretty high. Which basically means that investing in double digit dividend yield companies without your own research is unacceptable.

There is at least one thing I can tell for sure. Always do your own research before investing in any company. Never chase high dividend yields or extremely cheap stocks that experienced rapid decline recently. Most likely, there is something fundamentally wrong with such companies.

Get to know about how much a company pays in dividends per share. If you find out that a company pays $3 per share and you bought 100 shares of this company, you can expect $300 in annual dividends from this company, assuming it won't cut or suspend its dividends. And when you know how much dividends per share a company pays and how many shares you own, all you need to do is to multiply those numbers. And you don’t need to care about constantly changing dividend yield anymore.