once you understand how the dividend yield works you'll find that that's just not true.
WHAT IS DIVIDEND YIELD EXPLAINED
i'll teach you how the dividend yield works and i'll also teach you how to calculate it on your own because honestly, it is worth looking into the dividend yield it's just not really as important as we tend to think it is.
when i first started investing i thought that if you saw a five percent dividend yield that meant that you always got paid five percent in dividends no matter when you were investing in that company.
once you discover what the dividend yield actually represents it's quite a bit different than what a lot of us think.
we all know that stock prices go up and down every single trading day and this is the way that it's always been.
but what a lot of us aren't realizing is that the dividend yield is also going up and down every single trading day as well because of the way that it works.
the dividend yield is just the current percentage of money that you can make based on what the company's paying out in dividends relative to their exact curren stock price.
i know that this is a little bit complicated on the outside but hopefully by the end of this video you guys can make sense of everything because i'm gonna try to explain it in the easiest way possible.
so basically the way it works is if you see a dividend yield of five percent and you happen to invest ten thousand dollars then ten thousand dollars at that five percent rate would mean that you'd make five hundred dollars per year in dividends.
also assuming that you're investing all that money at the exact same time. because if you took that same ten thousand dollars and you invested it a month later the dividend yield could be completely different.
it could be higher or lower and that's all dependent on the stock price because as the stock price goes up or down the dividend yield is also going to fluctuate with it.
if you happen to be looking into a company that you want to invest in and you see that they have a current dividend yield of five percent then do not assume that that five percent is always going to stay the same.
as the stock price goes up and down every single day it is going to fluctuate the dividend yield as well.
also keep in mind that if the company you're looking into changes how much they're paying out in dividends that can significantly change the dividend yield.
let's say that a company is paying out five dollars per year a share and then all of a sudden they drop it to two dollars and fifty cents a share that can be a significant change to the dividend yield.
just keep that in mind as well.
you do need to understand that dividends are always paid out per share so for instance if you have a thousand dollars to invest and you're looking into a company that costs a hundred dollars a share then at that point you can only buy 10 shares of that company with your thousand dollars.
if the company you invested in happens to pay two dollars per share then obviously with your 10 shares you'll make 20 per year in dividends and that happens to be a two percent dividend yield.
let's say that you decided to wait to invest in that company and later down the road their share price ended up going down to fifty dollars per share and you still wanted to invest that thousand dollars.
at this point if you put a thousand dollars in at fifty dollars a share then you'd end up with twenty shares and if they're still paying out the two dollars in dividends per year then two dollars in dividends at twenty shares means that you're going to make forty dollars in dividends per year which happens to be a four percent yield.
the yield goes up as the share price goes down.
obviously if you only have a thousand dollars to invest and that specific company's share price happens to go down then that would mean you could buy more shares for the same amount of money that you have to invest.
because dividends are paid out per share you will be making more money per share because you can buy them at a better value when they're lower.
HOW TO CALCULATE DIVIDEND
now if you want to calculate the dividend yield all you have to do is take the current dividend payout per year and divide it by the current share price and that is it.
if a company pays out a dollar per share in dividends every year and the current share price is ten dollars then just take one and divide it by ten and then that will give you your dividend yield which is a ten percent dividend yield in this case.
please be aware that dividends are never guaranteed because any company out there can always cut back their dividends they can either reduce them or they can cut them out completely and you don't have any control over this.
even if you do all the research in the world there's still a chance that it can happen but obviously, there are companies out there that are significantly better than others in terms of being reliable on paying their dividends no matter what's happening in the economy.
So this is it for today, now we think you better understand what is dividend yield & how to calculate dividend yield yourself.