Firms do not always distribute all of the profit that they make to shareholders. This means that even if the earnings per share seem to be a reasonable amount, it doesn't’mean that the shareholders have made a good return on their investment. Instead you need to calculate the dividend yield if you would like an indication of how well the return on shares compares to the price of a share.
How Does the Dividend Yield Differ From Earnings Per Share/Earnings Ratio?
Dividend yield is different to earnings per share and earnings ratio because it takes dividends (the profit that the business has given to shareholders) into account. Dividend yield compares the market price of the share against the dividend paid out by the business.
Calculating Dividend Yield
To calculate the dividend yield you will need to find out the value of the ordinary share dividend and the ordinary share market price. Once you have these figures divide the ordinary share dividend by the ordinary and multiply the answer by 100%.