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Dividend Yield

A dividend is a form of distribution via a portion of a company’s earnings, payable to its existing shareholders after given consent by the board of directors. Dividends can be paid by various methods such as cash, shares of a company, or other related properties owned by the company, of which usually is the former. Dividends are also paid either on a quarterly, semi-annually or annual basis.

Newly established companies, and other high-growth companies, particularly in the technology sector hardly issue dividends, as profits will be kept as retained earnings to fund future expansion. More often, established companies with stable profits such as healthcare, utilities or consumer products companies often declare regular dividends payments.

Certain companies have a dividend policy to reward shareholders via a distribution of a certain percentage of their net profit. For instance, XYZ Bhd has a dividend policy of 30% pay-out from its net profit.

Scenario

Variables Data
No. of shares 100,000,000
Share Price RM1.00
Net Profit (2017) RM15,000,000
Dividend Pay-out 30.0%

Calculation

Variables Data
Dividend payment RM15,000,00 x 30.0% = RM4,500,000
Dividend per share RM4,500,000 / 100,000,000 = RM0.045
Dividend Yield RM0.045 / RM1.00 x 100% = 4.5%

Based on the above scenario, XYZ Bhd’s share offers a dividend yield of 4.5% for 2017. However, bear in mind that upon ex-dividend date, XYZ Bhd’s share price will be adjusted accordingly to RM1.00 – RM0.045 = RM0.955 due to change in the equity structure of the company.

Over the past ten years, Malaysia’s interest and inflation rate were averaging at 2.9% and 2.6% respectively. In order to outperform the general consensus, investors are advised to select companies that reward shareholders with regular dividend payments that offer dividend yields greater than Malaysia’s interest rate and inflation rate.

Malaysia Historical 10-Year Interest Rate

dividend 1

Malaysia Historical 10-Year Inflation Rate

dividend 2

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