Dividend yield measures the annual dividend income earned from owning a particular stock relative to its current market price. It is expressed as a percentage and is calculated by dividing the annual dividend per share by the current stock price.
The formula for dividend yield is: Dividend Yield = Annual Dividend Per Share / Current Stock Price * 100
For example, if a stock pays an annual dividend of $2 per share and its current market price is $50 per share, the dividend yield would be: $2 / $50 * 100 = 4%
A higher dividend yield implies a stock is providing a relatively higher return in the form of dividends compared to its stock price. It is often considered attractive for income-oriented investors seeking a steady income stream from their investments.
Dividend yield helps investors assess how much income they can expect to earn from owning a specific stock based on its dividend payments. Investors use dividend yield to compare the dividend income potential of different stocks within the same industry or across various sectors.
The dividend yield is not a fixed number; it fluctuates with changes in the stock's market price and the company's dividend policy. While a high dividend yield can be attractive, it may also indicate the stock price has declined significantly, potentially signaling financial challenges or market concerns.