Dividend yield expresses a company’s annual dividend as a percentage of its share price. It tells an investor how much cash income they earn each year for every dollar they have invested at the current price — the income counterpart to price appreciation.
A stock priced at $150 that pays $4.50 a year yields 3%. As the price moves, the yield moves inversely: the same dividend on a cheaper share is a higher yield.
Trailing yield uses the last year’s dividends; forward yield uses the expected next-year payout.
Suppose a stock pays $4.50 in dividends per share over a year and trades at $150:
An investor earns 3% a year in cash income at that price, before any change in the share price itself.
Compare yields across income stocks and against alternatives like bond yields to judge relative income. Crucially, read the yield alongside the payout ratio: a yield is only as safe as the earnings and cash flow behind it.
Dividend yield matters most to income-focused investors and to dividend-growth strategies, where the stream of cash — and its reliability — is the point, not just capital gains.
Because yield rises as price falls, an unusually high yield often signals distress rather than opportunity — the market may be pricing in a coming dividend cut. Yield also ignores growth and total return: a low-yield stock that raises its dividend for years can out-earn a high-yield one that never grows.