Before you invest in high dividend yield stocks, it is important to understand the dividend yield formula, but also to have an idea of the risks of only looking at dividend yield. How to calculate dividend yield, and how to use dividend yield? Watch the whole video to see both the pros and the cons of dividend yield.

⏱️TIMESTAMPS⏱️
0:00 Introduction to dividend yield
0:22 High dividend industries
0:50 Dividend examples
1:48 Dividend yield formula
1:58 Dividend yield calculation
3:03 Dividend yield risks
4:38 Dividend vs growth
5:05 Dividend yield trap

Examples of industries where dividend traditionally has been high are oil, commercial real estate and telecom. In the current low interest rate environment, you make very little return putting your money in a savings account or treasury bonds. That’s why many investors turn to high dividend industries with relatively low share price volatility to invest. A cash dividend is a cash payment from a company to its shareholders.

Let’s look at the #dividend for two companies in the telecom industry: AT&T (NYSE: T) and Verizon (NYSE: VZ).

The formula for #dividendyield is annual dividend divided by the share price.

AT&T has an annual dividend of $1.96 and a closing share price per April 5th 2017 of $41.02. AT&T’s dividend yield is therefore 4.8%.
Verizon has an annual dividend of $2.31 and a closing share price per April 5th 2017 of $48.44. Verizon’s dividend yield is therefore also 4.8%.

What are some of the pitfalls of using dividend yield as one of the main criteria for making investment decisions? You might not be seeing the whole picture! Here are five things you must be aware off:
Strategic risk.
Cash flow. Learn how to read a cash flow statement: https://www.youtube.com/watch?v=mZBjsIYrLvM&t=7s
The turkey problem.
Pay out versus invest.
Lastly, math is just math.

In summary, use dividend yield where appropriate, but look at the broader context before investing in the stock market!

Thank you for watching! If you enjoyed this discussion of how to calculate and interpret dividend yield, then please press the “like” button for me, and share the video with friends and colleagues!

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and #investing enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!