Glossary
Dividend Yield
A stock's annual dividends per share divided by its share price, expressed as a percentage.
Dividend yield expresses a stock's yearly dividend as a percentage of its current price. It answers a simple question: if I buy at today's price, how much cash income will I get each year per dollar invested, assuming the dividend stays the same? It lets income investors compare stocks with each other and with bond yields or savings rates.
Worked example
Trailing versus forward
Data sites calculate yield in different ways. Trailing yield uses the dividends actually paid over the last 12 months. Forward or "indicated" yield annualizes the most recent declared payment, so it reflects a recent raise or cut sooner. Special one-off dividends can inflate a trailing figure.
The high-yield trap
Because yield rises as price falls, a very high yield often means the market doubts the dividend will last. A stock yielding 9% when its peers yield 3% is usually signalling trouble, not a bargain, and a cut can bring both lower income and a lower price. Checking the Dividend Payout Ratio and cash flow helps separate durable payers from those living on borrowed time.
Yield is also only part of the return. A stock with a 1% yield and strong earnings growth can outperform a 5% yielder that never grows. Total return, which combines dividends and price change, is the fairer comparison.