Dividend Yield measures the annual income return from owning a stock, expressed as a percentage. It is calculated by dividing the annual dividend per share by the current stock price and multiplying by 100. For example, a stock paying $2 per share annually trading at $50 would have a 4% dividend yield ($2 ÷ $50 × 100).
Dividend yield helps traders identify income-generating stocks versus growth stocks. High dividend yield stocks appeal to income-focused investors seeking regular returns. Low or zero dividend yield stocks typically attract growth investors who expect value appreciation rather than dividend payments.
Traders should recognize dividend yield limitations. A surprisingly high yield may signal financial distress—the stock price has fallen while the dividend remains unchanged. Additionally, companies may reduce or suspend dividends during economic downturns, so past yields do not guarantee future income. Compare dividend yield with other metrics such as earnings per share (EPS) and price-to-earnings (P/E) ratios to assess a company's overall financial health.
