dividend yield
The annual dividend payment divided by the current stock price, expressed as a percentage showing how much income you receive relative to what you paid.
Example
“A stock paying $2/year in dividends at a price of $40 has a 5% dividend yield.”
Memory Tip
Dividend YIELD = annual dividend divided by stock price. Your income rate on the investment.
Why It Matters
Dividend yield helps you compare the income you earn from different stocks regardless of their price. It shows whether a stock is giving you good returns through regular cash payments, which is especially important for investors seeking steady income rather than just price appreciation.
Common Misconception
Many people assume a higher dividend yield is always better, but a yield that is unusually high compared to similar companies may signal that the stock price has fallen due to problems with the business. A very high yield could mean the company may cut its dividend in the future.
In Practice
If you buy a stock for $100 that pays $4 in annual dividends, your dividend yield is 4 percent. If that same stock rises to $200 but still pays $4 annually, your yield drops to 2 percent even though you own the same shares paying the same dividend amount.
Etymology
DIVIDEND (profit distributed) YIELD (return produced). The YIELD produced by DIVIDENDS.
Common Misspellings
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See Also
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