Dividend Yield
What percentage a year's dividends are of the share price — the annual return you get from dividends when you own the stock.
Dividend Yield = Annual Dividend per Share ÷ Current Share Price × 100
A high dividend yield means the company pays out a lot in dividends relative to its share price.
In plain terms
If a stock priced at $100 per share pays $3 in dividends over a year, the dividend yield is 3%.
Like bank interest, it shows "if I hold this stock, what percent per year do I receive in dividends even if the price doesn't rise." That makes it a key measure for people who invest with dividends in mind.
What it tells you
Apart from whether the share price rises or falls, it lets you gauge the cash income that comes in simply from holding.
It is often compared with market interest rates (deposit and bond interest). When the dividend yield is higher than interest rates, dividend stocks are sometimes seen as more appealing.
Formula
Dividend Yield = Annual Dividend per Share ÷ Current Share Price × 100
What high or low means
A high dividend yield means the company pays out a lot in dividends relative to its share price.
But sometimes the yield looks high not because dividends went up, but because the share price fell — so a high number isn't automatically a good thing.
If the dividend yield suddenly jumps, it may be because the share price dropped sharply rather than because the company raised its dividend (the denominator, the price, got smaller). In that case it can also be a warning sign that the dividend is about to be cut.
To know whether a dividend can continue, look at whether it is covered by free cash flow (FCF), or whether the company is borrowing to pay it.
Growth companies sometimes deliberately pay no dividend and reinvest in the business instead. A low dividend yield doesn't mean it's a bad company.
General Electric (GE) was one of America's best-known dividend stocks, paying dividends for over 100 years. But in the 2009 financial crisis it cut the dividend to about a third, and as its businesses fell apart in 2017–2018 it slashed the dividend all the way down to around one cent.
Investors who trusted GE as "stable" based on the dividend alone were badly shaken. Even if the dividend yield looks high, the dividend gets cut when the company isn't earning enough to pay it (and that shows up in earnings and free cash flow). A dividend is not a fixed promise — it can be reduced depending on the company's circumstances.
Metrics to read alongside
Guides that cover this term
See it in real stocks
Search US stocks on Stocklore to see Dividend alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.