Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its current stock price. It is expressed as a percentage and is commonly used by income-focused investors to assess the cash return they receive from holding a stock.
In simple terms, dividend yield answers the question: “How much dividend income am I earning for every peso I invest in this stock?”
How Dividend Yield Is Calculated
Dividend yield is computed by adding up all dividends paid over a year and dividing the total by the stock’s current market price.
Below is a practical example using AREIT, one of the Philippine Stock Exchange-listed REITs.
Assume the following:
Current stock price: ₱42.75
| Dividend Amount | Quarter |
|---|---|
| ₱0.580 | Q1 |
| ₱0.580 | Q2 |
| ₱0.590 | Q3 |
| ₱0.620 | Q4 |
To calculate the annual dividend, all quarterly dividends are added together:
₱0.580 + ₱0.580 + ₱0.590 + ₱0.620 = ₱2.37 per share for the year
The dividend yield is then calculated by dividing the annual dividend by the current stock price:
₱2.37 ÷ ₱42.75 = 0.0554
Converted to a percentage, AREIT’s dividend yield in this example is approximately 5.54%.
This means that for every ₱100 invested in AREIT at a price of ₱42.75 per share, an investor would earn about ₱5.54 in gross dividend income over a year, assuming dividends remain at similar levels.
Philippine Stock Market Context
In the Philippine Stock Exchange (PSE), dividend yield is widely used to evaluate dividend-paying companies such as banks, holding firms, utilities, REITs, and mature blue-chip stocks.
Key points specific to the Philippine market:
- Cash dividends - Most PSE companies declare cash dividends, though stock dividends are also common.
- Price-driven changes - Dividend yields fluctuate frequently because they are based on current market prices.
- Local benchmarks - Yields are often compared with time deposit rates, government bond yields, and inflation.
For example, a stock yielding 6% may appear attractive when bank deposits offer only 2–3%, but less compelling during periods of high interest rates.
Trailing Dividend Yield vs. Forward Dividend Yield
Dividend yield can be calculated in two commonly used ways.
- Trailing dividend yield - Uses dividends actually paid over the past 12 months and relies on historical data.
- Forward dividend yield - Uses expected or projected future dividends and is more uncertain.
In the Philippine market, many investors prefer trailing yield due to variability in dividend declarations.
Dividend Yield vs. Dividend Amount
Dividend yield should not be confused with the peso value of dividends.
A higher peso dividend does not automatically mean a higher yield, as the stock price plays a major role. Dividend yield allows investors to compare income returns across stocks with different price levels.
High Dividend Yield: Opportunity or Warning?
A high dividend yield can indicate strong income potential, but it may also signal underlying risks.
- Positive signals - Stable cash flows, mature business models, and consistent dividend policies.
- Warning signs - Falling share prices, declining earnings, or unsustainable payout levels.
In the PSE, unusually high yields often appear after sharp price declines rather than dividend increases.
Tax Considerations in the Philippines
For individual investors in the Philippines, cash dividends from domestic corporations are generally subject to a 10% final withholding tax. This tax is automatically deducted before dividends are credited.
Dividend yields are typically quoted on a gross basis, so investors should consider the after-tax yield when evaluating income returns.
Dividend Yield and Stock Price Movements
Dividend yield changes even if the dividend amount stays the same.
When stock prices fall, yields rise. When stock prices rise, yields fall. For this reason, yield should always be analyzed together with earnings performance and financial stability.
Common Investor Mistakes
- Chasing high yields – Very high yields may be unsustainable.
- Ignoring consistency – Stable yields are often safer than volatile ones.
- Overlooking taxes – Gross yield differs from actual take-home income.
- Equating yield with total return – Capital gains or losses still matter.
Dividend Yield in Dividend-Focused Strategies
For Philippine investors, dividend yield is commonly used for income planning, stock comparison, and dividend screening. However, it should never be used in isolation and works best when combined with other financial metrics.
Common Questions
Is a higher dividend yield always better?
No. Extremely high yields may indicate financial stress or potential dividend cuts. For example, a stock’s dividend yield can rise sharply if its share price falls due to poor business performance, even though the dividend itself has not increased.
Does dividend yield guarantee income?
No. Dividends are not guaranteed and depend on company performance, cash flow, and management decisions. Companies may reduce or suspend dividends during weak earnings periods.
Can dividend yield change even if dividends stay the same?
Yes. Dividend yield changes whenever the stock price changes. For instance, if a stock pays the same annual dividend but its price declines, the dividend yield will increase, even though the cash payout remains unchanged.
Are dividend yields the same across all PSE stocks?
No. Dividend policies vary widely by company and sector, with some firms prioritizing regular income distributions while others focus more on reinvesting profits for growth.