Dividend Yield: Meaning & Example

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Detailed Explanation

The dividend yield is a financial ratio expressed as a percentage that shows how much a company pays out in dividends each year relative to its stock price. Yields are a measure of cash flow generated by an investment. For income-seeking investors (like retirees), dividend yield is often more important than capital appreciation.

The Formula

Dividend Yield = (Annual Dividends Per Share / Price Per Share) × 100

Real-World Example

If Company XYZ's stock is trading at $100 per share and they pay an annual dividend of $4.00 per share, the dividend yield is 4%. If the stock price drops to $80 but the dividend stays at $4.00, the yield increases to 5%.

Key Takeaways

•A high dividend yield can be attractive, but it can also be a warning sign if the company's stock price has recently crashed.
•Dividend payments are usually made quarterly in cash.
•Yields fluctuate inversely with the stock price.

Related Terms

Capital Gains