When computing the dividend yield, net income is divided by the common stock price.

Question

Quizplus · Accepted Answer

The statement in the input question is incorrect. When computing the dividend yield, net income is not the figure that is divided by the common stock price. Instead, dividend yield is calculated by taking the annual dividends paid per share and dividing it by the price per share of the common stock.Here is the correct formula for dividend yield:
Dividend Yield = (Annual Dividends Per Share / Price Per Share) x 100%
To clarify:
- Annual Dividends Per Share: This is the total amount of dividends a company pays out over a year on a per-share basis.
- Price Per Share: This is the current market price of one share of the company's common stock.
The dividend yield is expressed as a percentage and represents the return on investment for a stock solely from dividends, not including any capital gains. It is a useful metric for investors who are focused on income generation from their stock holdings, as it shows how much they are earning in dividends relative to the price they paid for the stock.

When Computing the Dividend Yield, Net Income Is Divided by the Common