What it is
Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It's calculated by dividing the total annual dividend per share by the current market price per share. For example, a stock trading at $100 with an annual dividend of $4 has a 4% dividend yield. It helps investors compare the income-generating potential of different stocks.
Investors often use dividend yield to identify income-generating investments, particularly in sectors known for stable payouts, like utilities or consumer staples. A high dividend yield can attract investors, but it's important to investigate why it's high – it could be due to a falling stock price rather than a large dividend. Consistent dividend growth is often favored over a high, but potentially unsustainable, yield.
Why it matters
Dividend yield helps you understand the income return you can expect from a stock. It's crucial for income-focused investment strategies.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice