Lux Investing

High dividend yield problem?

If you invest in a company that has a high dividend yield and the price goes up the yield lowers correct? It doesn't stay in proportion so it's always the same yield. So like a share of $100 with 10% you'd get 10. Lets say the share increases to 110 would you get 10% of that or would you just get 10 dollars like previously. Becuase I was thinking with all these prices that are really low should you be worried about the yield percentage becusae when the price increases the yield will decrease .

Public Comments

1. I'm not sure if you fully understand the idea behind dividends. A dividend is a payment made per share to a shareholder. The dividend is set at an amount, not a percentage. For example Company XYZ pays a $10 dividend. If the current price for the stock is 100, then the yield is 10%. Now lets say the stock sky rockets to $200, the dividend remains the same at $10, so now the yield decreases to 5%. If the stock had tumbled to $50 / share than the yield would have doubled to 20%.. Now if you as an investor buys the stock while it is at $100 / share, and the dividend is $10, your yield will remain 10% for as long as you hold the stock. Your yield is determined based upon your cost basis not the current cost. When you do not own a stock, the yield is determined by the dividend divided by current price. when you buy in at that stock that is the yield that you are buying in at. If the dividend payment changes than the yield will change.
2. Yes, the yield will vary with stock price even if the dividend amount is fixed.
3. The dividend stays the same until the next dividend which may be higher or lower. If you are taking one particular dividend, the yield will, as you say vary with the price. If you have bought stock at a certain price then the yield to you will stay the same until the next dividend. The main thing about dividned and dividend yield is the prospective or future rather than the historic.
4. Dividend yield is the dividend/share price. When you see the yield, think of it as, "When I buy shares, my personal dividend yield is _____" Lets say you buy 1 share for $100 and it has a 3% dividend. For your share, when you bought it you paid $100 and you know you are getting $3 in dividends. Say a week later, the price is now $200. What is your yield? 3% because you are getting the same $3 on the $100 investment. Lets say you want to buy 1 more share at $200. You pay $200 and you get $3 in dividends. What is your yield on this purchase? 1.5%. When you buy, your personal dividend rate is dividend/price paid. Make sense?
5. The rate of the dividend is set by the company, not how well it's doing. The company picks a random rate and the dividends are paid at that amount.