Dividend yield is the percentage return realized by the investor when the dividend is received. Be wary of companies offering yields too high to be sustainable. This payout level might be unsustainable or could be an indication that the dividend will be cut. Nuclear energy provider افظل تشكيله لبيع الذهب في السوق السعودي Exelon (EXC) was paying nearly 7% dividend yield leading into 2013 and investors couldn’t have been happier. The cash ran out though and the dividend was cut 40% and the stock tumbled more than 20%.
Return on Equity (ROE) is return attained by the company from operations as calculated by net income divided by stockholder’s equity. The return on equity is used with the percentage of earnings not paid as dividends to find the company’s growth rate. If the company is not retaining sufficient earnings, then the growth rate will have to decrease and the stock price will stagnate. A healthy dividend payment is nice but investors ultimately need stock price growth as well as current income.
Dividend payout ratio is the percentage of income paid out as dividends. If the company is paying out all its income in dividends, it may not have enough for profitable, price-growing projects.