So we all know that stock prices go up and down every single trading day and this is
the way that it's always been but what a lot of us aren't realizing is that the dividend yield
is also going up and down every single trading day as well because of the way that it works so in
this video i'll teach you how the dividend yield works and i'll also teach you how to calculate it
on your own because honestly it is worth looking into the dividend yield it's just not really as
important as we tend to think it is because when i first started investing i thought that if you
saw a five percent dividend yield that meant that you always got paid five percent in dividends no
matter when you were investing in that company and once you discover what the dividend yield
actually represents it's quite a bit different than what a lot of us think the dividend yield
is just the current percentage of money that you can make based on what the company's paying out
in dividends relative to their exact current stock price so basically the way it works is if you see
a dividend yield of five percent and you happen to invest ten thousand dollars then ten thousand
dollars at that five percent rate would mean that you'd make five hundred dollars per year
in dividends but that's also assuming that you're investing all that money at the exact same time
because if you took that same ten thousand dollars and you invested it a month later the dividend
yield could be completely different it could be higher or lower and that's all dependent on the
stock price because as the stock price goes up or down the dividend yield is also going to fluctuate
with it so if you happen to be looking into a company that you want to invest in and you see
that they have a current dividend yield of five percent then do not assume that that five percent
is always going to stay the same because as the stock price goes up and down every single day
it is going to fluctuate the dividend yield as well and also keep in mind that if the company
you're looking into changes how much they're paying out in dividends that can significantly
change the dividend yield because let's say that a company is paying out five dollars
per year a share and then all of a sudden they drop it to two dollars and fifty cents a share
that can be a significant change to the dividend yield so just keep that in mind as well now you
do need to understand that dividends are always paid out per share so for instance if you have a
thousand dollars to invest and you're looking into a company that costs a hundred dollars a share
then at that point you can only buy 10 shares of that company with your thousand dollars
now if the company you invested in happens to pay two dollars per share then obviously with your 10
shares you'll make 20 per year in dividends and that happens to be a 2 dividend yield but let's
say that you decided to wait to invest in that company and later down the road their share price
ended up going down to fifty dollars per share and you still wanted to invest that thousand dollars
now at this point if you put a thousand dollars in at fifty dollars a share then you'd end up with
twenty shares and if they're still paying out the two dollars in dividends per year then two dollars
in dividends at 20 shares means that you're gonna make forty dollars in dividends per year
which happens to be a four percent yield because the yield goes up as the share price goes down
so obviously if you only have a thousand dollars to invest and that specific company's share price
happens to go down then that would mean you could buy more shares for the same amount of money that
you have to invest and because dividends are paid out per share you will be making more money
per share because you can buy them at a better value when they're lower
now if you want to calculate the dividend yield all you have to do is take the current dividend
payout per year and divide it by the current share price and that is it so if a company
pays out a dollar per share in dividends every year and the current share price is 10
then just take one and divide it by 10 and then that will give you your dividend yield which is
a 10 dividend yield in this case and please be aware that dividends are never guaranteed because
any company out there can always cut back their dividends they can either reduce them
or they can cut them out completely and you don't have any control over this so even if you
do all the research in the world there's still a chance that it can happen but obviously there are
companies out there that are significantly better than others in terms of being reliable on paying
their dividends no matter what's happening in the economy now if you are new to investing i
do have an affiliate link for robinhood in the description below where they'll actually give
you a free share just for signing up so definitely check them out if you have an interest now if you
just happen to find this channel i'm jason with honest finance and i make a lot of videos on
different topics that'll give your life and your finances more value so if you do have an interest
in this type of content feel free to subscribe but thank you for watching this video have a great day