Yield

Another popular way to assess a company is by looking at its yield.The yield on a share is calculated by dividing the dividend by the share price and multiplying by 100.

Investors tend to look at what is known as the prospective yield, which is calculated by estimating what the next dividend payment is expected to be.

For example: if a share is trading at 500p and its next dividend is forecast at 20p, the prospective yield will be 4 per cent (20/500 X 100 = 4). If the share price is 250p, the yield will be 8 per cent.

If investors are using past dividend payments as a guide, they will talk about the historic yield.

A high yield can mean that a company is very profitable and is able to pay generous dividends. Alternatively, a high yield can emerge if a company’s share price has dropped sharply, reflecting a fall in the wider market, concerns about the sector in which the company operates or concerns about the company in particular.