Types of Dividend Yield
Preferred Share Dividend Yield:
The prospectus determines the amount of dividend of a preferred share. The preferred shares are referred by the initial name. The initial name of the preferred share also represents the dividend yield of that share.
According to this theory if a preferred share carries 8% as its initial name, then it reflects that the dividend yield of that share is 8%. On the other hand, the preferred share prices fluctuate and the dividend yield that is connected with these prices are also liable to move up or down.
Common Share Dividend Yield:
The common shareholders receive no specified dividend. Dividends for common shareholders depend on the earnings of the company in that particular year and at the same time the management of the company also plays a decisive role in deciding the dividends for these types of shareholders.
There is no such provision that the future dividend on the common share is going to match the previous dividends of the company.
In 1990, the price appreciation is considered by the financial market as the prime form of yield produced by the investment. Because of this, dividend yields were not preferred too much at that time. Again, the dividend yield is considered as one of the instruments of deciding the strength of the investment. At the same time, a part of the market is not ready to consider the dividend yield as an instrument to evaluate the market.
Last Updated on : 27th June 2013