Calculate the Earning Yield-

A company has declared 20% dividend. The face value of the share is Rs 5 and the dividend payout ratio is 50%. The current market price of the share is Rs 100. Calculate the Earning Yield- 

Let's solve step-by-step 👇

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Given Data

• Dividend declared = 20%

• Face value (FV) = ₹5

• Dividend payout ratio = 50%

• Market price (CMP) = ₹100

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Step 1: Calculate Dividend per Share (DPS)

Dividend declared = 20% of face value

$$\text{DPS} = 20\% \times 5 = ₹1$$

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Step 2: Use Dividend Payout Ratio to find Earnings per Share (EPS)

$$\text{Dividend Payout Ratio} = \frac{\text{Dividend per Share}}{\text{Earnings per Share}}$$

Rearranging:

$$\text{EPS} = \frac{\text{DPS}}{\text{Dividend Payout Ratio}} = \frac{1}{0.5} = ₹2$$

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Step 3: Calculate Earning Yield

Earning Yield (EY) is the inverse of P/E ratio:

$$\text{Earning Yield} = \frac{\text{EPS}}{\text{Market Price per Share}} \times 100$$

Substitute values:

$$\text{EY} = \frac{2}{100} \times 100 = 2\%$$

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✅ Final Answer:

$$\boxed{\text{Earning Yield} = 2\%}$$

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Explanation

• The company earns ₹2 per share.

• It pays ₹1 as a dividend (50% payout).

• At the current price of ₹100, investors earn 2% in earnings yield — this means each ₹100 invested in the stock is generating ₹2 in profit for the company.

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Summary Table

Item	Formula	Value
Dividend per Share	20% of ₹5	₹1
EPS	DPS / Payout Ratio	₹2
Earning Yield	(EPS / Market Price) × 100	2%