Dividend yield tells you how much income a stock pays each year for every dollar you invest. It's a single percentage that lets you compare the cash payout of very different stocks at a glance.
Dividend yield is the annual dividend a stock pays divided by its current share price, written as a percentage. It answers a simple question: for every dollar I invest, how much cash income do I get back each year?
The formula: Dividend Yield = (Annual Dividend per Share ÷ Share Price) × 100. A stock paying $2 a year at a $50 price yields $2 ÷ $50 = 4%.
Because price is in the denominator, yield rises when the price falls and falls when the price rises — even if the dividend itself never changes. A stock that drops 20% will show a higher yield, which is why a falling price can make a yield look temptingly large.
A very high yield — say 10% or more — is often a warning, not a gift. It usually means the price has crashed because investors expect the dividend to be cut. A sustainable yield is backed by reliable earnings; an unsustainable one disappears the moment the company slashes its payout.
Yield is only the income piece. Your total return also includes capital gains or losses from the price moving. A 3% yield with a 7% price gain is a 10% total return; the same 3% yield with a 7% price drop is a 4% loss. Judge yield together with the company's health, not in isolation.
Watch yield compound: reinvested dividends turn yield into a snowball. See it happen in the dividend investing game with DRIP and play money.
Not advice: educational content only. For authoritative basics see the SEC at investor.gov.
Related: what are dividends, what is a REIT, and dollar-cost averaging.
Dividend yield is the annual dividend divided by the share price, shown as a percentage. It tells you how much income you earn each year for every dollar invested in the stock.
Divide the annual dividend per share by the current share price and multiply by 100. A $2 annual dividend on a $50 stock is a 4% yield.
Not always. A very high yield often means the share price has crashed because the market expects a dividend cut, so an unusually high yield can be a warning sign.
Yield is just the dividend income. Total return also includes the gain or loss from the share price moving, so two stocks with the same yield can have very different total returns.