Dividend Yield

Dividend yield shows how much income you earn from dividends relative to stock price. Formula: Annual Dividend / Stock Price.

Example: Stock trading at $100 pays $4 annual dividend = 4% dividend yield. If stock price rises to $120, yield drops to 3.3% ($4 / $120)—even though dividend stayed the same.

Typical yields:

• Growth stocks: 0-1% (reinvest profits for growth)
• Dividend stocks: 2-4% (share profits with investors)
• REITs: 3-7% (required to distribute 90% of income)
• High-risk: 6%+ (often unsustainable—warning sign)

Yield over 6-8% requires investigation. Either stock price crashed (red flag) or company is paying out more than it earns (unsustainable). Dividend cuts often follow.

Income investors target 2-4% yields from stable companies with dividend growth history. Combine yield with dividend growth for total return. 3% yield + 5% annual dividend growth beats 5% yield with flat dividends.