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Dividend yield definition
Dividend yield is a company's annual dividend per share expressed as a percentage of its share price. It tells you the cash income a share pays each year relative to what it costs to buy.
You calculate it by dividing the annual dividend per share by the current share price and multiplying by 100. Because the share price sits in the denominator, the yield rises when the price falls and falls when the price rises, even if the dividend itself has not changed. A very high yield can flag an unusually cheap stock or a dividend the market expects to be cut.
Dividend yield is not the dividend itself. The dividend is the cash amount a company pays per share, a fixed figure in currency, while the yield restates that amount as a percentage return on the current price, which makes income comparable across shares of different prices. The yield pairs naturally with the dividend, and investors read it alongside the payout ratio to judge whether the income is sustainable.
Dividend yield Example
You hold a share priced at USD 50.00 that pays an annual dividend of USD 2.00. You work out the dividend yield:
dividend yield = annual dividend √∑ share price √ó 100
USD 2.00 √∑ USD 50.00 = 0.04, or 4%
The share yields 4%. If its price later drops to USD 40 while the dividend holds, the yield rises to 5%.
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