Dividend Yield

Dividend yield shows how much income a stock pays relative to its price. The formula is the annual dividend per share divided by the share price, times 100.

Example: a stock priced at $80 that pays $0.80 per quarter has an annual dividend of $3.20 and a dividend yield of 4%.

Because the share price is in the denominator, the yield moves whenever the price moves. If the price falls and the dividend stays the same, the yield rises. That is why a very high yield is not always good news. It can signal that investors expect the dividend to be cut, a situation sometimes called a yield trap.

Data sources calculate yield differently. A trailing yield uses dividends paid over the past 12 months, while a forward yield uses the current dividend rate projected over the next year. Special one-time dividends can distort the figure.

Investors often compare dividend yields with bond yields and with the payout ratio, which shows whether the dividend is well covered by earnings. Dividend yield measures only income. Total return also includes price changes.