What Is Dividend Yield? How to See What You Earn from Dividends
If you own a stock, the company may share part of its profit with you as a dividend. But the dollar amount alone does not tell you whether that is a lot or a little. That is where dividend yield comes in.
Dividend yield shows the annual dividend as a percentage of the current share price. The math is simple: divide the yearly dividend per share by the current price and multiply by 100.
A quick example
Say a stock trades at $50 and pays $2 in dividends over a year. Divide 2 by 50 and you get 0.04, so the dividend yield is 4%.
With the same dividend, the yield falls when the price rises and rises when the price falls. So yield moves with the share price, not just the dividend.
| Share price | Annual dividend | Dividend yield |
|---|---|---|
| $50 | $2 | 4.0% |
| $40 | $2 | 5.0% |
| $60 | $2 | about 3.3% |
As the table shows, with the dividend unchanged, a lower price means a higher yield.
Is a high yield always good?
A high yield looks attractive, but high alone is not the same as good. Sometimes the price has fallen sharply, which makes the yield look high.
Check whether the company is paying more than its profits can support, and whether it can keep that dividend going. A one-off payout this year can shrink next year.
In short, dividend yield tells you roughly what percentage you would collect in dividends by buying at today's price. Rather than judging on that one number, look at whether the dividend is steady and sustainable for the company.