Dividend Yield

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is expressed as a percentage and calculated by dividing annual dividends per share by the current share price.

Dividend yield tells income-focused investors how much cash return they receive just from holding the stock. Unusually high yields can signal undervaluation — or an impending dividend cut.

What this tells you

The annual dividend divided by the current share price — what the dividend pays you, expressed against what a share costs today.

What it does not tell you

Yield rises when the price falls. A yield that looks unusually generous is frequently the market saying it does not expect the dividend to survive: the numerator is stale and the denominator has already moved. It also says nothing about whether the company can afford the payment — that question lives in the payout ratio and in cash flow, not here. And a yield is not a return: six percent paid out on a share that falls twenty percent is a fourteen percent loss.

Further reading: Wikipedia