Dividend yield

The dividend yield can be calculated as:

Dividend per share  Price per share

A high dividend yield may mean that the company is undervalued if the company is able to continue maintaining or increasing its dividends. Usually, companies that pay consistent dividends are defensive in nature.  Companies with fluctuating dividends suggest that the management may not being doing the best job in capital allocation.

Increased dividend per share

If a company’s share price is stagnant and the management is expected to increase the dividend paid per share and maintain it as profits of the company are expected to increase, then one can reasonably expect the share price of the company to increase.

Of course, one should also study the drivers of growth for the company’s net income and earnings per share. Preferably, the growth should be sustainable and should come from its operations.

How should options traders view dividends and dividend yield?

A great dividend yield makes a company’s share price more defensive than a company without a good dividend yield. Besides that, increasing dividends paid per share will cause share prices to increase in general. The opposite is also true. Decreasing dividends paid per share will cause share prices to decrease.