Dividend Yield
Annual dividend as a percentage of share price.
Formula
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Example
$2 on $50 = 4%
How it works
Dividend yield compares the cash a shareholder receives from a stock over a year with the current price paid for that stock. It works by turning the dividend amount into a percentage of the share price, so you can judge the income return from the investment at a glance. A higher yield means the stock is paying more income relative to its price, though it does not by itself show whether the stock is a good investment overall.
When to use it
Use this formula when you want to compare the income potential of different shares or check how much return a stock is paying in dividends relative to its market price. It is common in investing, portfolio analysis, and when looking for income-focused stocks.
Worked example, step by step
Annual dividend = $3.00 Share price = $75.00 Y = (Dividend / Price) × 100 Y = (3.00 / 75.00) × 100 Y = 0.04 × 100 Y = 4% The dividend yield is 4%.
Common mistakes to avoid
- Using the stock price without converting the dividend to an annual amount
- Forgetting to multiply by 100 to turn the decimal into a percentage
- Confusing dividend yield with total profit, which also includes changes in share price
Did You Know?
A very high dividend yield can be a warning sign, often meaning the share price has crashed.
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