What is Dividend Yield?

 

Dividend yield is a financial ratio that indicates the proportion of a company's annual dividend payout relative to its stock price. It is expressed as a percentage and is used by investors to assess the income potential of an investment in a particular stock.

To calculate dividend yield, you divide the annual dividend per share by the stock's current market price and multiply the result by 100 to convert it to a percentage. The formula for dividend yield is as follows:

Dividend Yield = (Annual Dividend per Share / Stock Price) * 100

For example, let's say a company pays an annual dividend of $2 per share, and the stock is currently trading at $50 per share. The dividend yield would be:

Dividend Yield = (2 / 50) * 100 = 4%

A higher dividend yield indicates a higher return on investment in terms of dividends, but it does not necessarily mean the stock is a better investment overall. It's important to consider other factors such as the company's financial health, growth prospects, and overall market conditions before making investment decisions solely based on dividend yield.