Dividend Yield Calculator

What is Dividend Yield?

Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's expressed as a percentage and is a key metric for income investors who want to earn cash flow from their stock investments. It's particularly valuable for income-focused investors, like retirees or long-term holders, who prioritize steady cash flow.

Key Things to Understand

• If dividends go up, yield goes up
• If stock price goes up, yield goes down (unless dividend also rises)
• If stock price drops, yield goes up — but that might be a warning sign
• High yield is good, but not always. Sometimes a company in trouble keeps a high dividend temporarily — but may cut it soon.
• Low yield doesn’t mean bad — growth companies might reinvest profits instead of paying dividends.

How Does Dividend Yield Work?

When a company earns profit, it may choose to share a portion of it with shareholders in the form of dividends. The dividend yield tells you how much return you’re getting from those dividends per INR invested in the stock.

Example:

Suppose a company pays an annual dividend of ₹20 per share, and the current stock price is ₹400. The dividend yield would be: (20 ÷ 400) × 100 = 5%. This means you're earning a 5% return annually just from dividends — not including any capital gains or stock price growth.

Taxation on Dividend Income

Dividend income is taxable in the hands of the investor, and tax is deducted at source (TDS) depending on the investor’s residency status.

For Resident Shareholders

• Indian companies must deduct TDS at 10% under Section 194 when the total dividend paid to a resident shareholder exceeds ₹5,000 in a financial year.
• For example, if someone receives ₹10,000 in dividends, ₹1,000 will be deducted as TDS, and ₹9,000 will be paid to the shareholder.
• This deducted amount can be claimed while filing the income tax return (ITR) as part of your total tax liability.
• Certain entities such as LIC, GIC, or other insurers holding beneficial ownership of shares are exempt from TDS on dividends.

For Non-Resident Shareholders

• A higher TDS of 20% is applicable under Section 195 for dividends paid to non-resident investors or foreign companies.
• The TDS rate may be lower if a Double Taxation Avoidance Agreement (DTAA) exists between India and the investor’s country, subject to documentation.
• To benefit from DTAA rates, non-residents must submit Form 10F, proof of beneficial ownership, and a tax residency certificate.
• If these aren't submitted, the default 20% TDS applies — but it can be claimed as a credit while filing tax returns in India.

Pros and Cons of High Dividend Yield

• Pro: Provides steady income even if stock prices are flat or falling.
• Pro: Signals mature, stable companies that generate consistent profits.
• Con: Extremely high yields can be a red flag — possibly due to a dropping stock price or unsustainable dividends.
• Con: Companies paying high dividends may have less capital to reinvest in growth.

Conclusion

Dividend yield is a valuable metric for investors seeking income from their investments. However, it's essential to consider other factors, such as the company's financial health, growth potential, and market conditions, before making investment decisions. Always balance the yield with other metrics like payout ratio and growth stability.