What is the Dividend Price Ratio?
The “Dividend Price Ratio” is another name for “Dividend Yield”, and so is defined in exactly the same way. The term dividend price ratio is typically used by researchers in finance where the study of the variability of this ratio is of interest. For the practicing investor, the emphasis is typically on the yield or return that they will get from a particular stock, and so they use the term dividend yield.
For example, let’s say that you buy 100 shares of Unilever, NV stock at $33.29/share and the commission cost $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 price ratio for this purchase is (again) the yearly dividend divided by the price paid, or in this case, $1.28/$33.37 * 100 or 3.84%.
One distinction that can be made between the use of the term dividend yield and dividend price ratio is that the latter term can apply to the total market for a company’s shares by using the term “dividend price ratio” to apply to the total amount of money paid by a company in dividends as a ratio of its market capitalization, or the price of all of its outstanding common shares.
Dividend Growth Investing has a certain minimum dividend price ratio, below which we are not interested in the company. At the present time, this minimum is the current 10-year average inflation rate. Dividend Growth Investing generally looks at companies with a dividend yield above this level.
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