Part 2/7:
Understanding Dividend Yield
At the heart of dividend investing lies the concept of dividend yield—a metric that elucidates how much return an investor can expect relative to the investment made in purchasing shares of stock. The formula for calculating dividend yield is straightforward:
Dividend Yield = Annual Dividend / Current Stock Price.
For example, if an investor puts in £1000 and receives £50 in dividends, the dividend yield equals 5%. While pursuing high-yield investments can be tempting, caution is advised to ensure long-term sustainability.
Calculating Investment Needs
To achieve a target of £1,000 monthly in dividends, understanding the required investment based on varying yield percentages is crucial:
3% yield: £400,000
4% yield: £300,000