What is dividend yield?
Dividend yield is the annual dividend a company pays per share divided by the current share price, expressed as a percentage. A stock priced at $100 that pays $3 a year in dividends has a 3% yield. It shows how much cash income shareholders receive each year relative to what the shares cost today.
Dividend yield matters to readers who want income, not just price gains, from their investments. Because the share price sits in the denominator, the yield moves opposite to the price: when a stock falls, its yield rises, and the reverse. That means a very high yield is sometimes a warning that the market doubts the dividend can last.
Yield is only half the story. A modest dividend that grows steadily can be worth more over time than a high one that gets cut. It also helps to check whether the dividend is comfortably covered by earnings and free cash flow: a payout that eats up nearly all of a company's cash is more fragile than one with room to spare.
| Yield | What it can reflect |
|---|---|
| 0% | The company reinvests its cash rather than paying it out; common for growth businesses. |
| About 1-3% | A modest, often growing payout alongside reinvestment. |
| About 3-6% | An income-focused payout, typical of mature companies. |
| Above ~6% | Generous, but worth checking whether the payout is sustainable. |
Frequently asked questions
Is a higher dividend yield always better?
Not necessarily. A very high yield can reflect a falling share price and doubts about whether the dividend will continue. A lower but steadily rising dividend, well covered by cash flow, is often more valuable over time.
What is a dividend payout ratio?
It is the share of a company's earnings, or free cash flow, paid out as dividends. A lower ratio leaves more room to keep paying during a rough patch; a ratio near or above 100% means the company is paying out almost everything it earns.