In the stock market, people use different analytical method to calculate the earnings and different factors, which affect the earnings. Not all the methods are efficient and accurate. There are many methods but only some of these are good.
If you are only interested in dividends and earnings then you should understand the combination of the dividend yield.



Dividend Yield:
It is the ratio or percentage of dividend, which a company pays against the price of its stocks. This is a less complicated relationship but very easy to understand. If we do not consider capital gain than if is simply the return on investment in the stocks.
Formula = Annual dividend over price of the stocks
This will simply tell you how much you are earning from the investment the stocks. In simple words, how much you earn after a one-dollar investment in the equity stocks. Invests can manage their portfolios with the help of the ration. Every investor requires high earning from his or her investments. The dividend yield ratio indicates the stock, which can provide them high earnings. Investors can easily calculate cash flows from the investments in stocks. They can compare different stock on the base of their cost and benefits or in financial work dividend and investment.
It makes easy for the company to choose stocks from the huge list. Mostly the investors like the high yield. This can indicate that the stocks under priced or the company is not in a good position and the price of stocks will never better in future. If the ratio is low then it is the indication that the stocks are overpriced and the dividend will be higher in future time periods. Some investors like high yield and some like low yield. This is according to their market experience and knowledge of the market.
It makes investment decision easy for the investors. There are thousands of companies offering millions of stocks in the market. It is very difficult for an investor to make investment decisions regarding these stocks. This ratio can help them to make this decision. They compare different stock prices and their yields and then select stocks according to their preferences. In old times when this ratio not introduced than it was very difficult for the investor to make investment decisions. There is lots of risk involve in this case. Your investment is on the line and you have to choose the best method of evaluation.
There are many methods and dividend yield is one of them. However, it is more reliable and effective method of all. Therefore, it is widely used all around the world. For gaining 100% success in the market you should learn this method. It is very easy and reliable tool.
For any successful business, you should learn its basics. If you start a business or do, investment without any understanding than you cannot get success in your life. This is very simple and single way of gaining success in the market of the world. You should understand the business before doing it.