Dividend Yield

Dividend yield is a way of expressing how much cash income a stock pays out, relative to its current share price. A dividend is a cash payment a company makes to its shareholders, usually out of profits, on a regular schedule (often quarterly). Dividend yield takes the total dividends a company is expected to pay over a year and divides that by the stock's current price, giving a percentage.

The calculation is simple: add up the annual dividend per share, divide by the current share price, and multiply by 100. For example, if a company pays $2 per share in dividends over a year and the stock trades at $50, the dividend yield is 4%. This lets you compare the income from very differently priced stocks on equal footing, the way an interest rate lets you compare savings accounts.

The nuance that trips people up is that yield moves in the opposite direction of price even when the dividend itself hasn't changed. If that same $50 stock drops to $25, the yield doubles to 8%, not because the company got more generous but because the price fell. A high yield can be a genuine sign of a solid income stock, or it can be a warning sign that the market expects the dividend to be cut soon and has already pushed the price down in anticipation. Yield alone doesn't tell you which.

It's also worth knowing that dividend yield is usually quoted using the most recent known or announced dividend rate, annualized, not a guarantee of future payments. Companies can raise, cut, or eliminate dividends at any time, and doing so changes the yield going forward even if the price stays flat.