Today we are going to look at using Dividend Yield as tool of fundamental analysis when it comes to financial spread betting. Dividends are the payments from company profits to shareholders paid out every year (dependent on company circumstances). Returns from Dividends is one of the two reasons why Shares are held in the long term, the other being the prospect of long term capital gains.

Dividend Yield and Dividend Announcements 
Dividend Yield is one of the most traditionally used pieces of fundamental analysis and still has some fans in the world of Spread betting. Though I don’t deem it quite as important as some of the other tools used in fundamental analysis. Dividend Yield is calculated by taking a company’s dividend per share (again like P/E ratio can be historic or forecast for the future) and then dividing this by the company’s share price. So for example if Big Bank PLC has a forecast dividend of 5p per share and a share price of 100p per share, this would mean that Big Bank PLC has forecast dividend yield of 5%. 

Dividend Yield becomes useful when used to compare companies in the same sector against one another. If Big Bank PLC has a forecast dividend yield of 5% and its competitor has a forecast dividend yield of 1.5%, it might make a Big Bank PLC a more attractive prospect for investors. So we may see a rise in the share price of Big Bank PLC and a possible downward movement of its competitor with a forecast yield of 1.5% if this yield is particularly low for the sector.

Unexpected dividend announcements can also have a role in causing sharp movements in share prices. If a company releases a dividend better than expected by the market this can lead to a spike in the share price of that company and vice versa for companies releasing a dividend announcement worse than the market expected. These announcements will feature heavily in the financial press and are very quickly absorbed by the market.

Part of the Beginners Guide to Strategy and Analysis for Spread Betting