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Dividend and Dividend Yield


As we have discussed earlier, dividend is a kind of annual profit that an investor could receive yearly. Unlike capital gain that is not promised, an investor could expect to receive dividend annually based on company’s dividend payment history.

To choose the right stock with constant dividend payout, you must first understand a term know as Dividend Yield, which can be calculated as below:

Example:
Selected stock: Malayan Banking Berhad (1155, MAYBANK)
Current price: RM8.54 (2 February 2016)
Bought price: RM9.00 (7 August 2015)
Dividend paid out annually: RM0.57**

Dividend Yield (DY%)

As we can see from the equation, dividend yield is not a fixed value. Depending on the stock price that is changing constantly, the dividend yield will also be adjusted constantly. Hence, let’s say we buy in MAYBANK at a lower price than RM8.54, the dividend yield we get now will be higher than 6.67%. Again, this is why we have to buy stock at a discounted price to squeeze the most out of it!

Lastly, referring to the value of dividend paid out annually (RM0.57), how do we obtain it? For this, we have to sum up the total amount of dividend paid out by the company within the last four quarters. In MAYBANK case for 2015, the company paid out 33 cents for December 2014 and 24 cents for June 2015, adding up to a total of 57 cents.

Maybank Dividend

To be considered as a good dividend stock, it must satisfy three criteria:
- is constantly paying dividend every year
- dividend yield should be at least higher than Fixed Deposit rate, preferably around 2x more than FD rate. 
- dividend payout amount increase year by year, or at least stay constant. 


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