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Purpose and benefits

Shares that pay dividends (note that not all do) will produce an annual cash return to the investor. Simply dividing this cash return by the current share price and expressing that as a percentage is known as the ‘yield’—that is, the annual percentage income at the current price. As far as newspapers are concerned, the yield figure published there is usually the historical one.

Analysts will often provide forecasts for dividends in terms of earnings per share (EPS) and thus the forecast yield can then be calculated. Forecasts can of course go wrong and consequently there is some risk in relying upon them.