What Is Dividend Yield?

Dividend yield is a stock’s annual dividend per share divided by its current share price, shown as a percentage. It tells you how much cash a company pays out each year for every dollar of stock you buy at today’s price, before taxes.

How it’s calculated

Dividend yield = annual dividends per share / share price

Maple Widgets Inc. (a hypothetical company) pays $0.60 per share every quarter, and its stock trades at $60.

• Annual dividend: $0.60 x 4 = $2.40
• Yield: $2.40 / $60 = 4.0%

Own 100 shares ($6,000) and you would expect about $240 a year in dividends, as long as the company keeps paying at that rate. Dividends are declared by the board and are never guaranteed. The dates that decide who gets paid are covered in how dividends work.

Trailing vs forward yield

• Trailing yield uses dividends actually paid over the past 12 months.
• Forward yield takes the most recent dividend and assumes it continues for a year.

The two differ when a company has just raised, cut, or suspended its dividend, so check which one a data site is showing.

Why yield moves when the price moves

The dividend sits on top of the fraction and the price underneath, so yield rises when the price falls. If Maple Widgets drops to $40 and keeps paying $2.40, the yield becomes 6.0%. Nothing improved: the stock got cheaper, often because investors expect trouble. A very high yield can be a yield trap, where the payout is later cut and the price falls further. The dividend investing article covers payout ratios and other ways to check whether a dividend looks sustainable.

What yield does not tell you

• It is not total return. Total return adds price changes to dividends. A 4% yield on a stock that falls 10% is still a loss.
• The price drops on the ex-dividend date. Roughly the dividend amount comes out of the share price, so a dividend moves value from the company to you rather than creating it.
• Taxes reduce it. Treatment differs between the US and Canada, and depends on the account the shares are held in.

Related: How Dividends Work · Dividend Investing Explained · Stocks vs Bonds