IB Business and Management - Dividend Yield Ratio

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IB Business and Management - Dividend Yield Ratio

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© IB Business and Management .com Dividend Yield Ratio T he IB Diploma Business and Management course delivered IN STYLE , ONLINE .

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z Dividend Yield Ratio Burton Inc. Dividends 2012 ($m) Hula Ltd. Share price 31/12/12 21 140 $1.50 140 200 $10.00 The formula Number of shares (m) Dividend per share ($) Dividend yield (%) 140 200 21 140 $0.70 $10.00 $0.15 $1.50 0.15 0.70 10% 7% If the share price rises , perhaps due to improved prospects for the business, then with an unchanged dividend the dividend yield will fall If the directors propose an increased dividend , but the share price does not change , then the dividend yield will increase . This rate of return can be compared with other investments , such as bank interest rates and the dividend yield from other companies. Directors may decide to pay dividends either from reserves or from another external source of finance to reward shareholders. Directors may decide reduce the annual dividend even if profits have not fallen in an attempt to increase retained profits – this could allow further investment in expanding the business. A high dividend yield may not indicate a wise investment – the yield could be high because the share price has recently fallen, possibly because the share market is concerned about the long term prospects of the company.

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