Dividend Yield

Dividend Yield is a fundamental ratio that indicates the portion of earnings a company pays out to shareholders in the form of dividends relative to the share price. It is expressed as a percentage.  

Dividend Yield

Dividend Yield is a fundamental ratio that indicates the portion of earnings a company pays out to shareholders in the form of dividends relative to the share price. It is expressed as a percentage.  


Dividend Yield Formula

Dividend Yield is calculated by taking the annual dividend per share and dividing it by the stock’s price. In the absence of capital gains, the dividend yield formula is the same as the company's Return On Investment (ROI).

Dividend Yield formula:  Annual Dividend per Share / Stock Price per Share

Dividend Yield Interpretation

Investors seeking income often buy stocks that pay a healthy dividend.  Dividend yield is considered to be return on investment for income investors who are not interested in capital gains or long-term earnings.

Income investors employ a variety of popular approaches to pick stocks including dividend growth, relative dividend yield and the Dogs of the Dow.

The basic Dogs of the Dow strategy involves buying an equal amount of the top ten yielding stocks in the Dow each year. The approach was first advocated by Michael O'Higgins in his book Beating the Dow.

Dividend yield should not be the only criteria used in stock selection as a high yield may mean that investors believe the company is in danger of a dividend cut. 

 

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