What is Dividend Yield?
Some of the common shares of stock that you buy pay a certain amount of money to you each year, called a dividend. If you divide this amount of money by the price you paid for the share of stock, and multiply by 100, you have a percentage, which is called the dividend yield of the stock.
For example, let’s say that you buy 100 shares of Unilever, NV stock at $33.29/share and the commission cost is $7.95. Your total costs are $33.29 x 100 + 7.95, or $3,336.95/100 or $33.37 per share. Let’s say that Unilever in 2012 pays shareholders $1.28 for each share held. Then the dividend yield for this purchase is (again) the yearly dividend divided by the price paid, or in this case, $1.28/$33.37 X 100 or 3.84%. For every $100.00 invested in Unilever, you will get $3.84 per year back in dividends. This is a fairly good yield.
More simply stated, dividend yield can be termed the dividend per share divided by the price per share.
Dividend Growth Investing has a certain minimum dividend yield, below which we are not interested in the company, at the present time. This minimum is the current 10-year average inflation rate. For example, if this 10-year average rate is 2.65%, and a company stock is purchased that has a 1.80% yield, then during the first year, the dividend income from that stock will not keep ahead of the decrease in purchasing power. Thus, Dividend Growth Investing generally looks at companies with a dividend yield above the current inflation rate..