ShmoopTube

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finance a la shmoop what is dividend yield? ah dividends the sign of the truly

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well-to-do company well when a company has nothing better to do with its cash

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and it has bought all of the corporate jets it wanted put in fountains in the [Fountain of water appears]

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executive suite bathrooms and offered massage and dog therapy to all of its

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employees it can then at its own discretion pay a dividend to its common

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shareholders of record common shareholders yep that's who gets

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dividends if you're an employee at a company and got say a bunch of stock [Employee stood beside company]

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options when the company signed you you don't get dividends unless you buy out

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your stock options and turn them into actual shares or common stock yeah well

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dividends get paid quarterly in almost all companies in the US and companies

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typically "declare" what their dividend will be a year or two or

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three in advance if they can Wall Street does not like surprises so Daddy [Wall Street appears]

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Warbucks rifles has made Bank in this neo zombie apocalypse and after buying

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all of the anti zombie spray it ever wanted along with the jets and fountain

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and doggy meditation classes well the company has extra cash it plans to [Dividends by a company building]

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dividend out that cash on a regular basis and just like most companies

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it has forecasted earnings three or four years or more into the future and this

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dividend payout will be some relatively modest percentage of earnings like if

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earnings will be something like 50 million then 70 million then 90 million

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x3 years while the dividend might be declared as 25 million dollars a year [Dividend payments appear]

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while doing the math here that'd be a 50% of earnings payout ratio in year one

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but if they keep the dividend flat and don't raise it well it would just be

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then twenty five over seventy or thirty six percent payout in year two and if

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they still keep it flat in your three well it would just be a 25 over 90 there

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that's a 28 percent payout and in real life odds are good they'd raised their

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dividend if their earnings performance was you know this good [Thumbs up appears]

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good performance right so what then is the dividend yield here to investors who

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own a share of common stock well if the stock was trading for 40 bucks a share

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and the dividend was 60 cents than the dividend yield would be 60 over 4000 or

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0.6 60 cents there over the 40 bucks or 1.5 percent if the stock ran up to 60

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bucks a share and the yield remained 60 cents well than the yield would be one

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percent right 60 over 6,000 there yeah and if the stock tanked to be just 10 [Stock plot line crashes]

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bucks a share and the dividend was still 60 cents a share the yielded be 6

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percent so you can imagine how high dividend yields kind of cushion the

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downside of stock like getting 6% it's pretty safe you know people are gonna be

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happy to just collect your divvy right all right well that's yield a la

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dividend and what should you do with the few bucks you'll make each month from [Man discussing dividends]

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your dividends well you might want to stock up on that zombie spray in case

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that things go awry [Person spraying zombie with anti zombie spray]

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