Dividend Yield
In short
Annual dividend payments as a percentage of stock price
If a stock trades at $100 and pays $3 a year in dividends, the yield is 3% — similar to the interest rate on a savings account, but for a stock. Because yield is dividends divided by price, it also rises whenever the stock price falls, even if the dividend itself hasn't grown at all.
Dividend yield divides the annual dividend per share — typically the trailing twelve-month total — by the current stock price. Because price sits in the denominator, yield moves for two very different reasons: a genuine dividend increase, or a falling stock price. A spiking yield should be checked against the payout ratio (dividends as a share of earnings or free cash flow) before it's read as attractive, since an unusually high yield relative to a company's own history often signals the market expects a dividend cut, not a bargain. Yields run structurally higher in mature, capital-return sectors like utilities, REITs, and telecoms, and near zero for growth companies that reinvest everything or prefer buybacks instead.
Formula
Dividend Yield = Annual Dividends Per Share ÷ Stock Price × 100Thresholds
- <1
- Low/no yield — growth stock
- 1-3
- Moderate yield
- 3-6
- High yield — income stock
- >6
- Very high — may be unsustainable
Related concepts
- P/E Ratio — Imagine buying a lemonade stand that makes $100/year. If it costs $2,000, the P/E is 20 — you need 20 years of earnings to pay it off. Lower means cheaper.
- FCF Margin — If a business earns $100 in sales and has $15 left after paying all its bills and investing in the equipment needed to keep running, its FCF margin is 15%. Cash is what actually funds dividends, buybacks, and debt paydown — accounting profit alone doesn't.
- PEG Ratio — If a stock has a P/E of 30 and analysts expect 30% annual earnings growth, its PEG is 1.0 — a fair multiple for that growth rate. A stock with the same P/E of 30 but only 10% expected growth has a PEG of 3.0, meaning investors are paying far more per unit of growth.