Dividend yield is the cash a company pays out in dividends over a year, expressed as a percentage of its current share price. It answers a simple question: for every ₹100 of share price, how many rupees of dividend did this stock pay?
How is dividend yield calculated?
The formula is:
Dividend yield = (annual dividend per share ÷ current market price per share) × 100
The numerator is usually the total dividend paid per share over the last twelve months, interim, final and any special dividends added together. The denominator is today's market price, which is why yield changes every day even if the dividend doesn't.
A worked example
Sunita is comparing two stocks she holds:
- Bharat Paints Ltd trades at ₹400 and paid ₹8 per share in dividends over the past year (₹3 interim + ₹5 final).
- Himalaya Agro trades at ₹90 and paid ₹4.50 per share over the same period.
| Bharat Paints Ltd | Himalaya Agro | |
|---|---|---|
| Annual dividend per share | ₹8 | ₹4.50 |
| Current price | ₹400 | ₹90 |
| Dividend yield | 2% | 5% |
Himalaya Agro pays a smaller rupee amount per share, yet its yield is higher, because yield measures the payout relative to the price you'd pay today. On a ₹90,000 holding of each, the past year's dividends would have been ₹1,800 from Bharat Paints and ₹4,500 from Himalaya Agro. (If dividends themselves are new to you, start with what are dividends, and how do I receive them.)
Why does yield rise when the price falls?
Look at the formula again: price sits in the denominator. If Himalaya Agro's price slides from ₹90 to ₹60 while the dividend stays ₹4.50, the yield jumps from 5% to 7.5%. Nothing improved, the market simply values the shares lower, possibly because it doubts the business or the dividend's future.
This is the classic trap in reading yields. A very high yield can mean a genuinely generous payer, but it can equally mean a falling price, a one-off special dividend inflating last year's number, or a payout the company may not repeat. Yield is a snapshot of the past divided by the present; it is not a promised return. A fixed deposit rate is a contract. A dividend yield is history.
It also pays to check what sits behind the dividend: a company paying out more than it comfortably earns may not sustain it. Ratios like earnings per share help here. See what are EPS, P/E ratio and book value.
Does the yield change after I buy?
The quoted yield always uses the current market price, so it moves with the market. Some investors also track "yield on cost" (dividend divided by their own purchase price) to see what their original investment now earns in cash. Both are just lenses; the company pays the same rupees per share either way, and where that cash lands is covered in will I receive dividends, and where are they credited.
Things to keep in mind
- Yield compares payout to price. A lower-priced stock with a modest dividend can out-yield an expensive one with a bigger dividend.
- A high yield is a fact about the past, not a promise about the future; dividends can be cut to zero at any time.
- Check whether last year's dividend included a one-off special payout before relying on the yield figure.
- Dividend income is taxable, so your effective yield after tax is lower than the quoted number.
Read next
What is a stock split? — An action that changes the share count without changing what you own.