Dividend Income

When Will The Dividend Yield On A Stock Increase?

When Will The Dividend Yield On A Stock Increase?
The dividend yield on stock will increase if the stock price drops like we are seeing a sea of red in the market now due to COVID 2019 crisis.

Drop is stock price is not the only instance when dividend yield increases. If we keep the stock price constant and increase pay out ratio from free cash flow ( provided cash flow is constant or have increased) then also the stock dividend yield will increase.

The dividend yield might go up if free cash flow increases significantly, and dividend pay out ratio is also kept to same level or increased.

When Will The Dividend Yield On A Stock Decrease?

The first condition is if the company does not make a ton of free cash which is significantly more than the previous year, and keep the payout ratio the same, then an increase in stock price will cause a decrease in stock dividend yield.

Second condition could be, if the stock price is same, the payout ratio decreases, that means the company decides to pay less amount as dividend, then that will cause a decreased dividend yield.

We have seens this happening to GE. GE took so much debt that they could not sustain repaying debt and they had to cut the dividend. And most of the time you will see the stock price falls as a price of dividend cut.

Recently fall in crude price caused the same fear for many oil stocks. The market thought they would not be able to continue paying out same amount as dividend and as a result the stock price crashed for most of the upstream companies like BP, Royal Dutch Shell.

You can go to Yahoo Finance, and search for any stock and check out the dividend yield. It shows the percentage and amount per stock.

And it is easy to calculate the dividend yield too. (Amount of Dividend)/ Stock Price *100 is dividend yield.

Share this post

About the author

Hi,
I am Abhiroop. I started working in IT services industry in the year 2007. I have worked in 3 continents. Currently, I live and work in the USA. While blogging was one of my hobbies that I picked up in college, I fell in love with the stock market in the year 2014. I purchased my first stock in 2008, and I sold them all after 2009. I did not know the power of compounding. Which was a HUGE MISTAKE. I intended to help everyone understand why we need to invest in stocks, hence I started this blog.

You can visit my LinkedIn page here https://www.linkedin.com/in/abhiroop85/

If you have any question or comment just drop a line in the comment section.

Leave a Reply

Your email address will not be published. Required fields are marked *