The dividend yield says how much a stock pays in dividends each year, expressed as a percentage of the stock price. It is how much you get paid for investing in the stock, like the interest on a bank account.
For example, if a stock that costs $100 pays $2 in dividends per share each year, then the dividend yield is 2%.
Dividend yields vary greatly between stocks, and not all of them pay dividends. It is more common for mature and well-established companies, but rare among newer companies that are growing fast.
- Dividend payments are usually paid quarterly (every three months), but can also be paid on different schedules. They are usually paid via direct deposit into the investor's brokerage account.
- Dividends are not guaranteed and can be increased, decreased or even cut completely by a company's board of directors.
- Most reported dividend yields are trailing, meaning they look at the past 12 months of payments. A "forward" yield estimates what the dividend will be over the next year.
- The dividend yield changes inversely with the stock price. If the price goes up, the yield goes down, and vice versa.
- The payout ratio measures the percentage of profits paid out as dividends. If it is very high, then the dividend may not be sustainable.
- A very high dividend yield can indicate that a company's future prospects are poor, so it may not be a good investment.
Dividend Yield Calculator
How to calculate
Here are the 4 steps to calculate a stock's dividend yield:
- Find the amount of the last quarterly dividend payment.
- Multiply that number by four to calculate the annual payment.
- Divide the annual amount by the stock price.
- Multiply by 100 to convert to a percentage yield.
Example calculation for Apple stock:
- At the time of writing, Apple's last quarterly dividend was $0.82.
- Multiplying that number by four gives an annual payment of $3.28.
- Then the annual payment is divided by the stock price of $351.73. This gives a ratio of 0.00933.
- Multiplying by 100% gives a dividend yield of 0.933%.