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Get Started in Shares by Glen Arnold

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Dividend yield

Beware of falling into the trap of looking for a share that has a large dividend expressed in pence per share. Don’t be too quick to be attracted to a company offering say 34p per share rather than one offering 12p – at least not until you have checked out the current share price. What really matters is the dividend as a percentage of the price paid for the share. This is called the dividend yield.

If the first company’s shares are selling for £9, the dividend yield is 34p divided by 900p, which is 3.78%. If the second company’s shares are selling for 120p, the dividend yield is a much more attractive 10%.

Dividend yields can be calculated on historical figures (based on the most recent 12 months of dividends) or on a prospective ...

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