The dividend yield is a financial ratio that measures the annual dividends paid per share relative to the stock’s current share price, expressed as a percentage. It indicates how much return an investor can expect from dividends for each dollar invested.

To calculate the dividend yield: Determine the annual dividends paid per share, obtain the current market price of the share, divide the annual dividends per share by the current share price, and multiply the result by 100 to get the percentage. Example: If a stock pays $3 in annual dividends per share and its current price is $60, the dividend yield is (3 ÷ 60) × 100 = 5%.

A 7% dividend yield means that for every $100 invested in the stock, the investor will receive $7 in dividends per year, assuming the dividend payments remain consistent.

A good dividend yield depends on the company and its financial circumstances: Less than 4% is generally considered safe, indicating stable returns with lower risk. 4% to 7% is moderate, offering higher returns but potentially increased risk. Above 7% is high, which may indicate higher risk, such as potential dividend cuts or financial instability.

To calculate dividends per share: Obtain the total dividends paid by the company (e.g., $5,000,000), determine the number of shares outstanding (e.g., 1,000,000), and divide the total dividends by the number of shares. Example: Dividends per share = $5,000,000 ÷ 1,000,000 = $5 per share.

The dividend yield is important because it helps investors assess the income potential of a stock investment, allows comparison of dividend-paying stocks across different industries, can indicate the financial health and stability of a company (high yields may signal risk), and aids in portfolio planning for income-focused investors.