Dividend stocks are a great way to create income, but how do we choose which stocks to buy? Both dividend yields and valuation ratios such as Price to Earnings and Price to Book Value are used to determine stock selections, but which matters more?

Dividend Yield

Dividend yield is basically calculated by taking the annual dividends per share and dividing it by the share price. In general, the higher dividend yield, the ‘cheaper’ the stock and the lower the yield, the more ‘expensive’ the stock is. For retirees, dividend yield can be thought of as rate of income return, similar to fixed deposit and bond interests. So you could compare for example, 4% yield stock to 1% fixed deposit to 3% yield bonds when trying to determine retirement income. The dividend yields on Singapore stock exchange ranges between 0% and 10.47%. The high yields look really attractive, but …