Dividend and Yield
Buying a company's stock gives you
part ownership to it, and depending on the percentage of your holdings or the
quantity of stocks you purchase, You can influence most of the company's activities
because you get more votes. Since you're a part owner of the company, you get
a portion of that company's earnings in the form of a dividend. In our example
here, ADM is paying out $0.46, which means that is how much money you are getting
for every share you own when the board of the company decides to distribute
part of its earnings to shareholders. If you own 100 shares of ADM expect to
receive an amount of about $46 when the dividend is issued. Some companies offer
stock dividends instead of cash.
The dividend yield is calculated by dividing the dividend(0.46) to its current
share price (35.46). Basically that is the percentage of the dividend you are
getting at the current share price. This changes in value depending on the stock
price. Lets say the amount it cost you to buy 100 shares of ADM at $35 is $3,500,
at that time the company announced a $0.46 dividend for every share you own.
At that stock price your dividend yield is 1.32%. (0.46 / 35= 1.32%).
Out of that $3,500 you're getting somewhere around $46 on dividends. When the
price of ADM drops to $20, its dividend yield would increase to 2.3% (0.46 /
20 = 2.3%). This is a better entry point for an investor looking for a dividend
paying stock since it can acquire more shares at $20 and get a $0.46 dividend.
This is how the ratio increases since a $3,500 entry at $20 would now get you
a $80 dividend payout.