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Dividend Yield vs Market Capitalisation

This article expresses the opinions and analysis of its author and does not necessarily reflect those of ShareSoc. The author accepts no liability for any errors in his analysis – readers should verify the analysis for themselves.

There has recently been some discussion within ShareSoc and SIGnet about the construction of the SIGnet Investors’ Index (SII). A point of debate was whether the SII was biased relative to more conventional and total return indexes because its small- and micro-cap weighting did not take account of the possibly higher contribution of dividends to total return offered by larger cap. stocks. I therefore agreed to undertake some research to discover how dividend yield varied with market cap.

I used SharePad to extract historic yield data for all UK listed and quoted stocks into a spreadsheet, which I then used to perform the analysis. My findings were as follows:

The arithmetic average yield for the shares in the FTSE100 is 2.72%

The arithmetic average yield for the shares in the FTSE All-share is 2.17%

Looking at “penny stocks”, i.e. those with share prices < 10p (296 stocks), I find that the arithmetic average yield is 1.73%. Many pay no dividend but the average is distorted by two outliers with massive yields – CCJS 123% and EDGI 377.8% – presumably these trusts are liquidating.

Looking at all stocks, the top 50% by market cap have an average yield of 1.56%, whereas the bottom 50% have an average yield of 1.74%. This is from a universe of 1848 stocks.

I therefore conclude that yield is NOT strongly correlated with market cap. or share price (except, perhaps, for the FTSE100 which does have a significantly higher than average yield).

Mark Bentley, Director, ShareSoc

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