Dividend Yield

Dividend yield measures the annual dividend payment as a percentage of the current stock price. It represents the cash return an investor receives from dividends alone, independent of any stock price appreciation.

To calculate dividend yield, divide the annual dividend per share by the current stock price. A stock trading at $100 that pays $3 in annual dividends has a 3% dividend yield.

Interpreting Dividend Yield

For large-cap stocks, a dividend yield above 2% is generally considered above average. However, an unusually high yield can be a warning sign. If a stock's price has fallen sharply while the dividend remains unchanged, the yield rises mechanically. This might indicate the market expects the dividend to be cut.

Some high-growth companies pay no dividend at all, choosing to reinvest all profits into growth. This is neither good nor bad; it simply means these stocks are not suitable for income-focused portfolios. The choice between dividends and growth reinvestment depends on a company's stage and strategy.