What is a Dividend Yield?

Too embarrassed to ask about this key feature of investing? A dividend yield is a portion of a company’s profits that is paid out to shareholders. Each year, managers must decide how much of each year’s profits will be paid out to shareholders in the form of dividends – usually once every quarter – and how much will be retained for business growth.

For example, if the profit (after tax) is $100,000 and $50,000 is paid out as cash dividends, then only $50,000 can be kept back by the directors for growth. This is why some companies grow quickly, but pay low dividends (typically technology companies) while others offer high dividends but low growth potential (such as utilities).


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