Description
This metric is an important measure of return for owners of dividend stocks. It measures the dividend component of an investor’s total stock return, measured as a percentage (note that the yield from dividends is in addition to any stock price appreciation).
A dividend is simply a payment, usually made quarterly, that a public company makes to shareholders as a return on their investment. Dividends are paid out of retained earnings, and the portion of retained earnings paid as a dividend is known as the “payout ratio”.
Calculation
* Note that the numerator is the annual dividend paid
What it Means
Dividend yield allows us to compare the dividend payout between 2 different stocks, even if their prices are drastically different. For example, a stock trading at $100 dollars a share that pays $1 annually has the same yield as a stock trading at $10 a share that pays $0.10 annually (1%). Typically, a stock with a dividend yield that is not too low, but not too high is favorable since this leaves some room for the company to grow its dividend payments.