Dividend Yield
Annual dividend payment divided by stock price. 3% yield on $100 stock = $3 yearly dividend. Measure of income return.
What You Need to Know
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.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/dividend-yield
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Dividend Reinvestment Planner
Model DRIP growth with taxes, reinvestment schedules, and compare dividend income strategies side by side.
Dividend Reinvestment Calculator
See the power of DRIP compounding with tax implications
Stock Returns Calculator
Comprehensive stock analysis: calculate profit from trades, project long-term returns with DRIP, and compare dividend strategies
Related Terms in Investment
12b-1 Fee
Hidden mutual fund fee (0.25-1% annually) for marketing and distribution. Comes out of your returns. Avoid funds with high 12b-1 fees.
AUM (Assets Under Management)
Total market value of investments managed by an advisor or fund. Used to calculate 1% annual advisor fees—$500K AUM = $5K/year.
Alpha
Excess return above benchmark. Positive alpha = beat the market. Most actively managed funds have negative alpha after fees.
Bear Market
20%+ sustained market decline from recent peak. Characterized by fear, pessimism, and falling prices. Buying opportunity for long-term investors.
Beta
Volatility compared to market. Beta of 1.0 = moves with market. Beta of 1.5 = 50% more volatile. Measures risk, not return.
Bull Market
20%+ sustained market rise from recent low. Characterized by optimism, economic growth, and rising prices. Opposite of bear market.