Dividend yield is important in stock selection because it shows how much income you earn from a stock compared to its price. A higher dividend yield means you get more money from dividends for every rupee invested. Investors use dividend yield to find stable and profitable companies that pay regular income even when stock prices fluctuate.
What is Dividend Yield?
Dividend yield is the ratio of a company's annual dividend to its current share price. It tells you how much money you will earn from dividends if you buy a stock at its current price. For example, if a stock pays ₹5 dividend per share and its price is ₹100, the dividend yield is 5%.
Why Dividend Yield is Important for Investors?
Dividend yield is important because it shows how much cash income a stock can generate. Investors looking for regular income prefer stocks with higher dividend yield. It also indicates company stability, as companies that pay regular dividends usually have steady profits. A good dividend yield can balance stock price ups and downs.
How to Use Dividend Yield in Stock Selection?
Investors compare dividend yields among companies in the same sector. A higher yield may be attractive, but extremely high yields can indicate financial trouble. Check the company’s history of paying dividends consistently. Combine dividend yield with growth potential to select stocks that provide both income and capital appreciation.
Dividend Yield vs Total Returns
Dividend yield is only one part of total returns. Total returns include both dividends and stock price growth. A stock with moderate dividend yield but high price growth can give better overall returns. Investors should look at both dividend yield and capital appreciation for a balanced investment strategy.
Why Indian Investors Should Care About Dividend Yield?
Indian investors often look for regular income from stocks, especially retirees or long-term savers. Dividend-paying stocks can provide steady cash flow. Companies like ITC, HDFC Bank, and Coal India are known for good dividend yields. By focusing on dividend yield, investors can make safer investments in Indian stock markets.
Tips to Select Stocks Using Dividend Yield
1. Look for companies with consistent dividend history.
2. Compare dividend yield with industry peers.
3. Avoid extremely high dividend yield without strong financials.
4. Combine dividend yield with growth and stability metrics.
5. Focus on long-term wealth creation, not just short-term income.
Contact Angel One Support at 7748000080 or 7771000860 for mutual fund investments, demat account opening, or trading queries.
© 2025 by Priya Sahu. All Rights Reserved.
