Dividend Yield

Dividend yield is the annual dividend payment divided by the current stock price, expressed as a percentage. If a stock pays $2 per year in dividends and trades at $50, the dividend yield is 4%. That 4% is the income return from holding the stock, separate from any price appreciation.

More yield means more income per dollar invested. But yields above 6–8% should raise a question: is this generous, or has the stock price dropped sharply because the market expects a dividend cut? When a company does cut its dividend, the stock usually falls further.

Dividend yield changes every day because the stock price changes. A stock rising in price while keeping the same dividend will see its yield fall. A stock falling in price will see its yield rise, which is why high yields sometimes signal trouble rather than opportunity.

Not all companies pay dividends. Growth companies typically reinvest profits rather than distributing them. Mature, stable businesses (utilities, consumer staples, banks) are more likely to pay consistent dividends.

Income investors screen for stocks with dividend yields above a certain threshold (2–4% is typical) combined with a track record of maintaining or increasing the dividend. Companies that have raised their dividend every year for 25+ years are called Dividend Aristocrats and are popular with this approach.

Dividend yield can also serve as a valuation signal. If a company has historically yielded around 3% and the current yield is 5%, either the company is paying more or (more commonly) the stock price has dropped. If the business fundamentals are intact, that higher yield might represent a buying opportunity.