{"id":10420,"date":"2016-02-26T06:56:01","date_gmt":"2016-02-26T14:56:01","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=10420"},"modified":"2016-12-21T07:27:37","modified_gmt":"2016-12-21T15:27:37","slug":"investing-basics-dividend-yield","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investing-basics-dividend-yield\/","title":{"rendered":"Investing Basics: What Is Dividend Yield"},"content":{"rendered":"

Retirement portfolios make money for you a number of ways. Of course, they hold stocks, which can rise in value<\/a> and be sold at a profit.<\/p>\n

They also hold bonds, which are loans by an investor to governments or\u00a0corporations. The loan is repaid with interest, resulting in a gain in the form of interest paid.<\/p>\n

The gap between the repaid loan and the extra money you earn as interest can be calculated as “yield,” a predictable return expressed as a percentage.<\/p>\n

But what is “dividend yield” in a retirement portfolio<\/a>?<\/p>\n

\"dividend<\/p>\n

Dividend yield is a\u00a0form of periodic cash income earned from stock holdings. It’s calculated slightly differently, since stock ownership is not a loan, but it can be easily compared to bond income and is relatively\u00a0predictable.<\/p>\n

If you own a share in a corporation, you are an owner, just the same as the founder, the board and the employees who work there and collect stock in their pay packets.<\/p>\n

Being an owner, however small your investment, often means that you are entitled to a portion of the company’s earnings<\/a> \u2014 the dividend.<\/p>\n

Every three months the board meets to release new earnings results, reporting on whether the company made or lost money.<\/p>\n

Many companies take profits and reinvest them. Or, they can give a portion of that cash to shareholders.<\/p>\n

Growth companies, for instance, often choose to use profits to expand, buy out competitors or to finance\u00a0research and development. That’s usually a good thing for investors, if the opportunities are real.<\/p>\n

Other companies issue occasional dividends as money piles up, especially if no clear new investments are at hand. Better you should take your money to invest elsewhere.<\/p>\n

Still others are stocks known as “dividend payers.” They pride themselves on disbursing extra cash every quarter, often raising the dividend each year and never missing a payout<\/a> for years and years.<\/p>\n

If you decide to own\u00a0a dividend payer, you can figure out what your yield will be by dividing the dividend amount paid over one year by the current share price.<\/p>\n

For example, if a share costs you $50 and the total annual dividend payment is $2, then the dividend yield is 2\/50 = 0.04, or 4%.<\/p>\n

If you know the stock pays 4% at $50 a share, then as the price of the stock falls the dividend yield will go up, assuming the dividend payment amount in dollars remains unchanged.<\/p>\n

For instance, let’s say\u00a0the share price drops to $40 but the dividend is still $2. At the new price, 2\/40 =\u00a00.05, or 5%. The dividend yield is higher on any shares bought at the lower price.<\/p>\n

Low risk return<\/h2>\n

Considering that the long-term bond yield is\u00a0relatively low, at around 2.6%, a stock that pays 5% can be an attractive proposition. As long as the dividend remains steady<\/a>, the risk of loss is low.<\/p>\n

Dividend stocks are very attractive when their prices drop, if the dividends are reliable. It is far more common for a dividend to be cut than for a bond to default, however. Companies also can go out of business, of course.<\/p>\n

Nevertheless, dividend yield is an important indicator of value for many investors, particularly those seeking to avoid the risks of pure long-term\u00a0bond investing. Held in a diversified portfolio<\/a>, dividend stocks are an important tool for retirement investment growth.<\/p>\n","protected":false},"excerpt":{"rendered":"

Retirement portfolios make money for you a number of ways. Of course, they hold stocks, which can rise in value and be sold at a profit. They also hold bonds, … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":10422,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[8],"tags":[62,43,54],"yoast_head":"\nInvesting Basics: What Is Dividend Yield | MarketRiders<\/title>\n<meta name=\"description\" content=\"Dividend yield is an important indicator of value for many investors, particularly those seeking to diversify away from pure bond investing.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.marketriders.com\/investing\/investing-basics-dividend-yield\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Investing Basics: What Is Dividend Yield | MarketRiders\" \/>\n<meta name=\"twitter:description\" content=\"Dividend yield is 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