Dividend Yield
Definition
Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price, expressed as a percentage.
Explanation
Dividend yield is calculated by dividing the annual dividend per share by the current stock price. It is a key metric for income-focused investors, providing a measure of the cash return on investment from dividends alone.
A high dividend yield can indicate an attractive income opportunity, but it may also signal that the stock price has fallen (yield has risen passively) or that the dividend is unsustainable. Investors should evaluate payout ratios and dividend growth history alongside yield.
Example
A stock trading at $100 per share that pays $4 in annual dividends per share has a dividend yield of 4%.