DIVIDEND YIELD
Back to GlossaryDefinition
Annual dividends per share divided by the stock price; an income return measure.
Summary
Dividend yield is a financial ratio that shows how much income an investor receives from dividends relative to the stock's current price. Think of it as the 'interest rate' you earn from owning a stock through dividend payments. It's calculated by taking the total annual dividends paid per share and dividing by the current stock price, then multiplying by 100 to get a percentage. A higher dividend yield indicates more income return per dollar invested, making it valuable for income-focused investors.
Usage Context
Essential when analyzing investment opportunities, comparing income-generating assets, evaluating portfolio performance, and understanding different investment strategies like value investing versus growth investing.
Common Confusions
- Confusing dividend yield with total return (which includes capital gains)
- Thinking higher dividend yield is always better without considering sustainability
- Not understanding that dividend yield changes as stock price fluctuates
- Mixing up dividend yield with dividend growth rate
- Assuming all stocks pay dividends
