Every Bhadra and Asoj, the same message lands in NEPSE Telegram groups. “Bank X declares 15 percent dividend!” Someone replies that this beats a fixed deposit. Someone else buys. Almost nobody stops to ask: 15 percent of what?
The answer is 15 percent of NPR 100, the face value of the share, not 15 percent of the NPR 700 you would pay for it in the market. That one confusion sits underneath most of the bad dividend decisions made on NEPSE. It is also why the debate over dividend yield vs payout NEPSE investors keep having online usually goes nowhere. People are arguing about two different numbers, and neither of them is the “dividend percentage” printed in the headline.
This piece separates the three: the announced percentage, the dividend yield, and the payout ratio. Then it makes an argument that most dividend coverage in Nepal avoids. A high dividend yield is often not a sign of a generous company. It is frequently a sign of a falling share price, and a falling share price usually knows something the trailing dividend does not.
The headline percentage is not a yield
Nepali companies announce dividends as a percentage of paid-up capital, which in practice means a percentage of the NPR 100 face value of each share. When a board “proposes 15 percent,” it means NPR 15 per share, split between cash and bonus shares.
Take a real case. Everest Bank’s board proposed a 15 percent dividend for FY 2082/83 at its meeting on Bhadra 11, made up of 5 percent bonus shares and 10 percent cash (the cash portion partly covers tax), according to ShareSansar’s report of August 27, 2026. The proposal still needed NRB approval and endorsement at the AGM. On the day of the report, the stock’s last traded price was NPR 729.50.
So the investor buying at NPR 729.50 is not getting 15 percent. They are getting NPR 15 of value on a NPR 729.50 purchase. That is about 2.1 percent, before tax, and that figure counts the bonus shares as if they were money in hand. They are not, as we will see.
The headline percentage tells you what the company is distributing relative to its own share capital. It is a company-side number. You, the buyer, live in the market price. That is where yield comes in.
Dividend yield: what you earn on the price you pay
Dividend yield is the dividend per share divided by the current market price, expressed as a percentage.
Dividend yield = Dividend per share ÷ Market price per share × 100
It answers one question: if I buy this share today, how much income does the most recent dividend represent on my money?
For Everest, using the August 27, 2026 price, the full 15 percent proposal works out to NPR 15 ÷ NPR 729.50, or about 2.06 percent. Strip out the bonus shares and look only at cash, and it is NPR 10 ÷ NPR 729.50, about 1.37 percent. These are our calculations from ShareSansar’s reported figures.
Tax shaves a little more. Dividends from Nepali resident companies carry a 5 percent final withholding tax, and that rate stands for FY 2083/84 under the Finance Bill 2083, according to the Pradhan & Associates briefing on 2083/84 income tax rates. The tax is charged on both the cash and the par value of the bonus shares, and companies typically deduct it from the cash portion. On Everest’s proposal, that is NPR 0.75 of tax on NPR 15 of total dividend, leaving about NPR 9.25 of cash per share. Cash in hand as a share of price: roughly 1.27 percent. (Our explainer on dividend tax on NEPSE walks through the mechanics in full.)
Now the “beats a fixed deposit” claim looks different. A share bought at NPR 729.50 with a 1.27 percent after-tax cash return is not competing with a fixed deposit on income. It may still be a good investment, but the case has to rest on growth, on the price going up, not on the dividend.
Why bonus shares should not count toward yield
This is the part most dividend tables in Nepal get wrong. When a company issues 5 percent bonus shares, you own 5 percent more shares. The company owns exactly the same bank, the same loans and the same deposits. Nothing new was created. The market adjusts the price downward on book closure to reflect the larger share count, which is why the price “drops” after a bonus. We cover the formula in why a stock’s price drops on bonus shares.
A bonus share is a slice of the same pie cut thinner. It can be worth having (it keeps cash inside a bank that needs capital, and the extra shares may later trade above their adjusted price), but it is not income. If you want a yield number you can compare with interest on a deposit, use cash only. Our view: any “dividend yield” figure in Nepal that adds bonus percentages to cash and divides by price is overstating your income, and you should recompute it yourself.
Payout ratio: what share of profit the company gives away
Payout ratio flips the perspective back to the company. It is dividend per share divided by earnings per share (EPS), the profit attributable to each share.
Payout ratio = Dividend per share ÷ Earnings per share × 100
It answers a different question: of every rupee this company earned last year, how much did it hand to shareholders, and how much did it keep?
Everest Bank reported annualized EPS of NPR 36.95 for FY 2082/83 in its fourth-quarter results, according to ShareSansar’s August 5, 2026 summary of the bank’s unaudited report. A NPR 15 dividend against NPR 36.95 of EPS is a payout ratio of about 41 percent. Count cash only and it is about 27 percent. Again, these are our calculations.
Here is where the two numbers part ways in a way that should change how you read announcements. Global IME Bank’s AGM approved a 10 percent dividend for FY 2082/83, made up of 4 percent bonus shares and 6 percent cash including tax, according to ShareSansar’s report of October 4, 2026. The bank posted net profit of NPR 6.04 arba and said its paid-up capital would reach NPR 39.69 arba after the bonus issue.
Back out the pre-bonus capital (NPR 39.69 arba ÷ 1.04, roughly NPR 38.16 arba, or about 38.2 crore shares) and Global IME earned roughly NPR 15.8 per share. A NPR 10 dividend on that is a payout ratio of around 63 percent. That is our estimate, not a reported figure, and the editor should check it against the bank’s annual report.
Put the two side by side. Everest announced the bigger headline (15 percent against 10 percent). Global IME gave away a much larger share of what it earned (roughly 63 percent against roughly 41 percent). Neither headline told you either fact. And neither headline told you the yield, because that depends on a market price the board does not set.
What a payout ratio tells you that yield cannot
A payout ratio is a sustainability check. A company paying out 30 to 50 percent of earnings has room. If profit dips next year, it can keep the dividend flat by paying out a larger slice. A company paying out 90 percent or more has no cushion. Any fall in earnings forces a cut.
A payout ratio above 100 percent means the company paid more than it earned that year, drawing on retained earnings from earlier years. That can happen once, in a bad year, by a company with deep reserves. When it happens repeatedly, the dividend is being funded by the balance sheet rather than by the business, and it will end.
For Nepali banks there is a further twist. Not all of net profit is available to pay out. NRB requires banks to move amounts into regulatory reserves before arriving at distributable profit, which is why a bank’s dividend is better compared with distributable profit than with headline EPS. Our explainer on distributable profit vs net profit covers that gap. The practical rule: for banks, a payout ratio calculated on EPS can look comfortable while the payout on distributable profit is already stretched.
Why a high dividend yield is often bad news
Now the argument.
Yield has two moving parts, the dividend and the price. Most investors assume a high yield means the dividend is high. Very often it means the price is low, and the price is low because the market expects trouble.
Work through a simple illustration with made-up round numbers. A company paid NPR 20 in cash last year. Its share traded at NPR 400, so the trailing yield was 5 percent. Then its quarterly reports start showing rising bad loans and falling profit. The price slides to NPR 250. Nothing has changed about last year’s dividend, so the screen now shows a trailing yield of 8 percent. On a dividend ranking table, this stock just jumped to the top.
But the trailing yield is a backward-looking number. It uses last year’s dividend, which was paid out of last year’s profit. If this year’s profit has collapsed, the board will cut. Say the next dividend is NPR 5. At NPR 250, the real forward yield is 2 percent, not 8. The investor who bought for the 8 percent got neither the income nor the price.
This is not a hypothetical worry in Nepal. It is close to what happened to bank shares over the past decade. ShareSansar’s August 7, 2026 analysis of the commercial banking sector found that average dividend-paying capacity per share fell from NPR 17.87 in FY 2016/17 to NPR 0.78 in FY 2023/24, recovered to NPR 6.27 in FY 2024/25, and turned negative (roughly minus NPR 2.51) by the third quarter of FY 2025/26. Over the same stretch, the sector’s average non-performing loan ratio rose from 1.60 percent to 5.41 percent. Between July 15, 2017 and July 16, 2026, the Commercial Banking sub-index rose 1 percent while the NEPSE index rose 64 percent, the same analysis found.
Any investor who screened banks on trailing yield during that slide was looking at dividends that the underlying business could no longer support. The yield looked attractive precisely because prices were falling ahead of the cuts. We made a related argument in why commercial bank dividends are shrinking: when profit and dividend disagree, believe the dividend. The extension here is simple. When yield and payout ratio disagree, believe the payout ratio.
The regulator can cap the dividend for you
There is a Nepal-specific reason trailing yields mislead in the financial sector: NRB decides how much some institutions are allowed to pay. In August 2025, NRB tied microfinance dividends directly to capital and loan quality, according to ShareSansar’s report of August 25, 2025. Microfinance institutions with post-dividend capital adequacy above 12 percent and NPLs below 5 percent may pay up to 25 percent. Those with capital adequacy between 10 and 12 percent may pay up to 20 percent, and those between 8 and 10 percent up to 15 percent, again only with NPLs below 5 percent. An institution needs at least 9 percent capital adequacy to pay any cash, and one with NPLs above 15 percent cannot pay a dividend at all.
Read that as an investor. A microfinance stock showing a fat trailing yield from a year when it qualified for 25 percent may not qualify next year if its loan book has worsened. The cap is set by the ratios, not by the board’s generosity. If you are buying for yield in this sector, the NPL and capital adequacy lines in the quarterly report predict next year’s dividend better than last year’s dividend does.
How to use both numbers together
Neither number works alone. Yield without payout ratio tells you how much income you might get, but not whether it will last. Payout ratio without yield tells you whether the dividend is sustainable, but not whether the price makes it worth buying. Here is a working routine using only figures from a company’s quarterly report and the NEPSE price.
First, convert the headline. Take the announced percentage, split it into cash and bonus, and turn the cash part into rupees per share (on NPR 100 face value, 10 percent cash is NPR 10). Ignore the bonus part for income purposes.
Second, compute the cash yield on today’s price, then subtract the 5 percent withholding tax on the full dividend. That is your realistic income yield.
Third, compute the payout ratio against EPS from the fourth-quarter report. For banks and other NRB-regulated institutions, check it against distributable profit per share too.
Fourth, check the trend, not the snapshot. Look at three to five years of EPS and dividends. A yield that has risen because the dividend grew is a different animal from a yield that has risen because the price fell.
Fifth, read the risk lines. For banks and microfinance, look at the NPL ratio and capital adequacy. Everest’s own Q4 report, for example, showed NPLs rising from 0.38 percent to 0.49 percent and capital adequacy falling from 13.17 percent to 12.23 percent, according to ShareSansar’s August 5, 2026 summary. Those are still comfortable levels, but they are the direction of travel that eventually constrains payouts.
Then sort the stock into one of four boxes:
- Moderate yield, moderate payout (say 30 to 60 percent), stable or rising earnings. This is the healthy profile. The dividend is covered and has room to grow.
- High yield, high payout, falling earnings. The classic trap. The yield is high because the market expects a cut.
- Low yield, low payout, rising earnings. A company keeping profit to grow. Fine if the growth is real, but do not buy it for income.
- High yield, low payout. Rare and worth a closer look. It can mean the market is pricing in risk the earnings do not yet show, or it can mean the stock is cheap. You have to find out which.
What about hydropower and other sectors?
The same logic applies beyond banks, with a few twists. Listed hydropower companies often pay little or no dividend in the early years after commissioning, while project loans are being repaid, so a zero yield there says more about the debt schedule than about the business. When they do pay, earnings can swing with water flow and plant availability, so a single good year’s payout ratio is a weak guide.
Insurers answer to their own regulator and their own capital rules, so the same check applies: compare the dividend with what the company can actually distribute, not just with reported profit. In every sector, the principle holds: a dividend is only as durable as the earnings, and the capital rules, behind it.
The verdict
The number Nepali investors quote most, the headline dividend percentage, is the least useful of the three. It is calculated on a face value nobody pays. Dividend yield fixes that by using the market price, but it is backward-looking and, once bonus shares are stripped out, usually far smaller than the headline suggests. On Everest’s 15 percent proposal, a buyer at the August 27, 2026 price was looking at about 1.3 percent in cash after tax.
The payout ratio is the number that tells you whether a dividend will survive. It is also the one least likely to appear in the Telegram message.
So stop ranking stocks by yield. Rank them by how comfortably earnings cover the dividend, then ask whether the price makes that covered dividend worth having. A high yield on a stretched payout is not a bargain. It is the market warning you, in the only language it has, that the next dividend will be smaller than the last.
This is analysis, not financial advice.
