Dividend Yield
Annual dividend per share divided by stock price, expressing dividend as a percentage return.
Dividend yield is the annual dividend per share divided by the stock price, expressed as a percentage. It shows what percentage return you earn annually from dividends alone.
Formula
Dividend Yield = Annual Dividend Per Share ÷ Stock Price
If a stock paying $2 annually is trading at $100, the dividend yield is ($2 ÷ $100) × 100 = 2%.
Why It Changes
Dividend yield is not fixed. If the company keeps the dividend constant but the stock price falls, the dividend yield rises. Conversely, if the stock price rises, the yield falls.
Typical Ranges
- S&P 500 median: 1.5–2.5%
- High-yield stocks: Above 5% (investigate why)
- Tech stocks: 0–1.5% (prefer growth)
- Utilities/REITs: 3–6% (stable income)
Yield Traps
A high dividend yield can signal opportunity or danger. Before buying a high-yield stock, check the payout ratio and dividend history to ensure the dividend is sustainable.
Key Takeaway
Dividend yield is one measure of income from a stock, but high yield alone doesn't make a good investment. Always verify that the dividend is sustainable before buying for income.