What Is Dividend Yield?
Annual dividends paid as a percentage of the stock's current price.
The Full Definition
Dividend yield is calculated by dividing a stock's annual dividend payment by its current share price. A $50 stock that pays $2 in annual dividends has a 4% yield. Yield rises when the stock price falls and falls when the stock price rises — which is why an unusually high yield can signal that a stock's price has dropped sharply, not that it's a great income opportunity. Sustainable yield, backed by consistent earnings, matters far more than the highest number you can find.
Real-World Example
A stock yielding 8% sounds attractive, but if the company's earnings can only support a 3% payout, a dividend cut is likely. A stock yielding 2.5% that grows its dividend 10% per year will pay you significantly more income a decade from now.