Dividend yield tells you how much income a stock pays compared to what it costs today. It’s calculated by dividing the annual dividend by the current share price.
Think of it like the interest rate on a passive reward. You hold the asset, and the yield shows how much cash it kicks back each year.
Dividend yield helps compare income across different stocks. It’s especially useful for investors focused on steady cash flow rather than pure price gains.
A reasonable yield can add stability during volatility and support long-term strategies like buy and hold. But yield should always be viewed alongside business quality and sustainability.
Dividend yield is expressed as a percentage:
- Higher yield: more income, but potentially higher risk
- Lower yield: less income, often paired with growth or stability
- Rising yield caused by a falling price can be a warning sign
- Sustainable yields are supported by strong cash flow
Context matters more than the number alone.
A common mistake is chasing the highest yield. Extremely high yields can signal trouble, not opportunity.
Another error is ignoring total return. A solid yield won’t help if the stock price keeps declining due to weak fundamentals.
