P/E ratio and dividend yield explained for beginners

When you look at a share on the Tashkent Stock Exchange (UZSE), the price on its own tells you very little. A share priced at 500 UZS is not automatically cheaper than one priced at 50,000 UZS. To compare companies, investors use a few simple ratios that link the price to what the company earns and pays out. This guide covers three of the most common: the price-to-earnings ratio (P/E), dividends and dividend yield.

What the P/E ratio tells you

The P/E ratio compares the share price with the company's profit per share. The formula is:

• P/E = share price ÷ earnings per share (EPS)
• EPS = net profit ÷ number of shares outstanding

Here is a hypothetical example. Suppose a company earned a net profit of 10 billion UZS last year and has 100 million shares outstanding. Its earnings per share are 100 UZS. If the share trades at 800 UZS, the P/E is 800 ÷ 100 = 8.

You can read that as: at today's price, you pay 8 soʻm for every 1 soʻm of annual profit that belongs to one share. Another way to see it is to flip the ratio. Profit divided by price (1 ÷ 8) is 12.5%, which is sometimes called the earnings yield. It is a rough way to compare a share with the interest you could earn elsewhere, though profit is not cash in your pocket and it can change from year to year.

How to read a P/E without fooling yourself

A low P/E can mean a share is inexpensive relative to its profits. It can also mean the market expects those profits to fall. A high P/E can mean investors expect growth, or that the share is simply expensive. The number is a starting point for questions, not an answer. Keep these points in mind:

• Compare like with like. A bank, a cement producer and a telecom company have different business models. Compare a company's P/E with similar companies and with its own history, not with the whole market.
• Check which profit is used. P/E is usually based on the latest reported annual profit. If that year included a one-off gain, such as selling a building, the P/E looks lower than the business really deserves.
• Negative profit means no meaningful P/E. If a company made a loss, the ratio cannot be read in the usual way.
• Look at the balance sheet too. The price-to-book ratio (P/B) compares the price with the company's equity per share. A company with a low P/E and heavy debt carries different risks from one with a low P/E and no debt.
• Liquidity matters on UZSE. Some shares trade rarely. If the last trade was small or long ago, the price used in the ratio may not reflect what you could actually buy or sell at today.

What a dividend is

A dividend is the part of a company's profit that it pays to shareholders. Not every company pays one. A company may keep its profit to invest in growth, to repay debt, or because it made no profit at all.

In a joint-stock company, the decision to pay dividends on ordinary (common) shares is normally taken by the general meeting of shareholders, which approves the amount per share and the timing. The company then publishes that decision. In Uzbekistan, listed companies disclose such decisions and their annual reports on openinfo.uz, the official disclosure portal, and trading information is published by the exchange on uzse.uz.

Two things to watch when you hear about a dividend:

• Who receives it. Dividends go to the shareholders recorded in the register on a set date (the record date). Buying the share after that date usually means you do not receive that payment.
• Preferred and common shares differ. Many UZSE companies have both. Preferred shares often carry a dividend defined in the company's charter, while the dividend on common shares depends on each year's decision. Always check which share class a dividend figure refers to.

Dividends may also be taxed. Tax rules change over time, so check the current rules in the Tax Code on lex.uz rather than relying on an old article.

Dividend yield: the formula

Dividend yield shows how much cash a share has paid relative to its price:

• Dividend yield = annual dividend per share ÷ share price × 100%

A hypothetical example: a company pays a dividend of 60 UZS per share for the year, and the share price is 800 UZS. The dividend yield is 60 ÷ 800 × 100% = 7.5%.

If the price later falls to 600 UZS while the dividend stays at 60 UZS, the yield rises to 10%. That sounds better, but ask why the price fell. A very high yield sometimes appears just before a company cuts its dividend, because the market already expects the cut.

A few habits help:

• Use the dividend for a full year, and note which year it relates to.
• Look at several years of dividend history, not one payment.
• Compare the dividend with profit. The share of profit paid out is called the payout ratio (dividend per share ÷ EPS). In our example, 60 ÷ 100 = 60%. A company paying out more than it earns cannot keep doing so forever.

Using P/E and dividend yield together

The two ratios answer different questions. P/E asks how much you pay for the profit. Dividend yield asks how much of that profit actually reaches you as cash. Putting them together gives a fuller picture:

1. Start with the P/E and compare it with similar companies.
2. Check whether profits are stable, growing or falling over several years.
3. Look at the dividend per share and the payout ratio.
4. Calculate the dividend yield at the current price.
5. Read the company's latest disclosures for anything that could change the picture, such as new debt, a large investment or a change in ownership.

No ratio removes risk. Share prices can fall, dividends can be cut, and a company can struggle even when its ratios look attractive. Spreading your money across several companies and asset types helps, as explained in our guide to diversification and risk.

Where to find these numbers

Company reports and dividend decisions are on openinfo.uz, and prices are on uzse.uz. Finmind also brings the key figures together. Each share on the public stocks pages has a fundamentals section that shows P/E, P/B, ROE, net profit, equity and dividend per share (with the year it relates to) when the company has published the underlying figures. The page notes the closing date used for P/E and P/B and that they rely on the latest reported annual figures. You can open these pages without a Finmind account.

If you want to practise before using real money, you can create a free Finmind account and try the simulator, which is part of the free tier, along with the tutorials. For the basics of how shares and bonds differ, see stocks vs bonds, and for bonds, which pay coupons instead of dividends, see the UZSE bonds pages.

This article is for education only and is not investment advice. Investing in securities involves risk, including the loss of money you invest.