When we check "dividend" of private companies, we face some ratios in order to calculate the profit. For example, EPS is the abbreviation of "Earning Per Share," which means "Net income divided the number of outstanding shares." (To be exact, we need some adjustments about Net income and outstanding shares...)
Here are my memorandum for memorizing the following 2 ratios regarding "dividend."
1) Dividend payout ratio
It's defined as the ratio: "Dividend per share divided by EPS."
In considering that "share"s appeared in both numerator and denominator, we may regard as the ratio of dividend divided by earning. We can understand that it's the tendency of dividend compared to earnings or the company can prepare cash for dividend for investors.
2) Dividend yield
We define as ratio of "Dividend per share divided by MV per share." It's easy to understand when we invest private companies and have to choose some of them. We usually focus on profitability from the dividend or its MV(=Market Value). Dividend yield provides us some useful information about which option we should choose.
If Dividend yield is high, we may expect relatively high dividend compared to its stock. So, many people would expect its dividend, theoretically. On contrast, if Dividend yield is low, the stock price is relatively high compared to its dividend, and we might expect capital gain.
At last, "yield" means the ratio of expectation, and in memorizing 2 ratios above, I notice the basic meanings: "payout" and "yield." Roughly speaking, "payout" is lots of money, and we need to think about liquidity. So, Dividend payout ratio is thought as "Dividend per Earning."
Meanwhile, "yield" means an expected ratio of profitability. So, Dividend yield is Dividend per MV.