What Is The Difference Between Dividend And Dividend Yield?

Dividend and dividend yield are not one and the same. The best way to explain, both the terms is to understand them with an example.

Let us now understand the difference between dividend and dividend yield

Let us take the example of Karnataka Bank, a private sector bank in India. Last year, the bank declared a dividend of 50 per cent or Rs 5 per share on a face value of Rs 10.

Now, if you buy 1000 shares of Karnataka Bank, your cost is Rs 1 lakhs. If the bank declares Rs 5 per share dividend, you will receive Rs 5000 as dividend.

So, your dividend yield would be Rs 5000x100/100000= 5 per cent.

So, the dividend declared by the bank is 50 per cent, whereas your dividend yield is 5 per cent.

However, there are a few more things you should consider for dividend yields. Say the book closure of Karnataka Bank is July 1. If you bought the shares on Jan 1, you would get a yield of 10%, because your holding period of the shares is 6 months and not 1 year.

That is also an important factor in calculating dividend yields. Remember, that every company may not declare the same dividends every year. There are many companies that will reduce the dividend, which will bring down their dividend yields.

Now, there are a few things that you should consider, when you talk of dividend and dividend yields.

Book closure

Book closure for dividends is the period when banks will close their books for the purpose of declaring dividend.

Ex-dividends

Ex dividend is the date, after which you will not receive dividends for a particular financial year. Let us say Karnataka Bank declares a book closure of July 26. The stock exchange will decide that July 21, is the ex-date, after which you will not receive dividends from the company. It is extremely important to understand the ex-dividend, book closure date for the purpose of dividend.

Conclusion

As seen, there is a big difference between dividends and dividend yields. It is always a good idea to look for companies that pay high dividends and hence the yields are high. There are many companies, whose share prices are attractive and the yields are attractive on the shares.

At the moment, we have shares like Coal India, which is a favorite for dividend yields along with metal and mining stock NMDC.

These are zero debt, cash rich and high dividend yielding stocks in India.

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