Portfolio Dividend Yield
A stock’s dividend yield measures its annual dividends as a percentage of its price. More about the ratio can be read here.
A portfolio’s dividend yield represents the total annual dividend income from the portfolio as a percentage of the current net worth of the portfolio
A high dividend yield number is good as it indicates that the investor received more dividends from the companies in his / her portfolio.
So how does one know whether the dividend yield he / she has earned is high or low? Obviously either by comparing the portfolio dividend yield with the benchmark dividend yield or by comparing the current dividend yield of the portfolio with its’ historical numbers.
However one has to be careful before drawing broad conclusions about the dividend yield of a portfolio. A portfolio might earn low dividends due to a number of reasons. Companies growing at a fast pace conserve cash and do not pay out dividends. Companies making losses continuously might also not have spare cash to pay dividends. If the investor’s portfolio has a lot of fast growing companies or a lot of loss making entities, dividend yield will be low. However the first case is good for the investor because share prices of fast growing companies also grow fast, thereby earning good return on investment. Low dividend yield because the portfolio has a lot of loss making companies will affect the investor 2 ways. He/ she does not earn dividend income and at the same time company’s share prices might also drop resulting in loss on investment.
Hence investor should understand the portfolio companies better before interpreting the dividend yield number.