Dividend Yield
The annual dividend payment of a stock divided by its current share price, expressed as a percentage. It represents the income return on an investment, excluding any capital gains.
Dividend yield tells you how much income a stock generates relative to its price. If a company pays $2.00 per share annually in dividends and its stock price is $50, the dividend yield is 4%. It is one of the key metrics used by income-focused investors.
Interpreting Dividend Yield
A high dividend yield can be attractive, but it can also be a warning sign:
- Sustainable high yield — Mature companies with stable cash flows (utilities, consumer staples) often pay generous dividends
- Yield trap — A very high yield may result from a falling stock price, signaling the market expects the dividend to be cut
Dividend yield is just one component of total return. A stock with a 2% yield and 8% price appreciation delivers 10% total return—the same as a stock with a 5% yield and 5% appreciation. For a complete overview of income strategies, visit our dividend investing guide.