With companies preparing to announce their final dividends over the coming months, there has been a surge of interest in high dividend yield stocks. However, investors should consider whether they should try to reap the benefit of high dividends by investing directly in stocks, or if the dividend yield fund route is the superior option.
Understanding dividend yield
Novice investors find high dividend yields very alluring. A 100 per cent dividend signifies a payout equivalent to the share’s face value. For example, if a stock has a face value of Rs 10 and declares a 100 per cent dividend, the shareholders receive Rs 10 per share. The dividend yield, calculated by dividing the per-share dividend of Rs 10 by the share price of, say, Rs 1,000, is merely 1 per cent.
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