I have to say, I was very confused for a long time about the difference between a dividend rate and a dividend yield. I figured, whether its a rate or a yield its still paying me so why should I care. Well, there is a difference and its significance is worth mentioning. Making $300 in profit through dividends this year would be nice. But knowing the difference between dividend yield and dividend rate will give you the tools and insight to increase your profitability to $600 next year. It is important to distinguish the difference between dividend rate and dividend yield because they reveal two entirely different things. Dividend Rates The dividend rate in which you will receive is measured as a dollar value. Dividend rate is typically expressed on an annual basis although companies usually pay dividends quarterly.
For example. If Company X pays a dividend rate of $1 per share and they pay their dividend quarterly, then the annual dividend rate is $4 per share.
Based on the number of shares you own, you will be able to tell how many dollars you will receive in the form of dividends. If you multiply the dividend rate by the number of shares you own, this will give you the dollar amount you expect to receive. Dividend Yields A dividend yield is measured as a percentage. Here is the formula: Annual dividends per share - divided by - stock price = dividend yield
Remember how Company X pays a dividend of $1 per share each quarter? If the stock is now trading at $100, it has a 4% dividend yield.
Investors use dividend yields as a comparison of two or more stocks to evaluate their percentage of return.
Good investing, Dan