Dividend Yield
Annual dividend as a percent of share price
What is Dividend Yield?
Dividend Yield measures the annual cash income an investor receives from a stock as a percentage of the current share price. It is the most direct measure of income return for equity investors. A high dividend yield can signal either an attractive income investment or a distressed company with a falling stock price (yield rises when price falls, the "yield trap"). Sustainable dividend yield depends on the payout ratio (dividends as a % of earnings) and the dividend coverage ratio (earnings / dividends). Dividend growth investing prioritises companies with low current yields but consistent dividend growth: a $1 dividend growing at 8% per year doubles in ~9 years.
Formula
Dividend Yield = Annual Dividend per Share / Current Share Price × 100%
Payout Ratio = Annual Dividend / EPS × 100%
Calculator
How to Use
- 1Find annual dividend: Quarterly dividend × 4 (for consistent quarterly payers). Use forward dividend for current yield.
- 2Divide by current price: Annual Dividend ÷ Price × 100 = Yield %.
- 3Check payout ratio: Dividend / EPS. Below 60% is generally sustainable; above 80% may indicate dividend risk.
- 4Assess growth: Consistent dividend growth (3-8% per year) is more valuable than a static high yield.
Worked Example
Example: Consumer staples dividend stock
Annual Dividend
$3.20
Share Price
$80
EPS
$5.50
Dividend Yield = $3.20 / $80 = 4.0%. Payout ratio = $3.20 / $5.50 = 58%, which is sustainable. The dividend is covered 1.72× by earnings, providing a reasonable safety margin. If earnings grow 5% per year and the payout ratio stays constant, the dividend also grows 5% per year.