Dividend yield

Definition

Dividend yield measures the annual dividend income an investor receives from a stock relative to its current share price. It is expressed as a percentage and helps investors evaluate the income-generating potential of a stock investment.

5 Must Know Facts For Your Next Test

1. Dividend yield is calculated by dividing the annual dividends per share by the current market price per share.
2. A high dividend yield may indicate a mature, stable company, but it can also signal potential financial trouble if unsustainable.
3. Comparing dividend yields across companies in the same industry provides insight into which stocks might offer better income opportunities.
4. Dividend yields are influenced by factors such as company profitability, payout policies, and broader economic conditions.
5. Investors seeking regular income often prioritize stocks with higher dividend yields, especially in low-interest-rate environments.

Review Questions

• How is dividend yield calculated?
• What might a high dividend yield indicate about a company's financial health?
• Why might investors compare dividend yields within the same industry?

Related terms

Payout Ratio: The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.

Earnings Per Share (EPS): A company's profit divided by its number of outstanding shares of common stock.

Price-to-Earnings (P/E) Ratio: A valuation ratio calculated by dividing the market price per share by earnings per share.