Dividend yield definition

Helps you to understand how much a company pays out as a dividend each year compared to its share price.

What is dividend yield?

Dividend yield helps you to understand how much a company pays out as a dividend each year compared to its share price. It’s displayed as a percentage, and is used by investors to see the dividend earnings they can earn on their investment in the company.

This is useful because even though investing should be a long-term game, getting an annual dividend from your investments can help to provide you with a form of income in the present. Or, you can choose to reinvest your dividend back into the company - which will help you to supercharge the effects of compound interest.

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What is a good dividend yield?

There’s no hard-and-fast rule for a good or bad dividend yield. That’s because if a company’s dividend yield is rising, it could either be a sign that their dividend is increasing, or that their share price is declining.

If the company’s dividend is increasing, that’s good for investors that want to achieve some sort of annual return on their investment while holding the company’s stock long term. But, a declining share price is bad news for investors that are looking to sell their investment for a profit in the future.

 

How to calculate dividend yield

To calculate dividend yield for a company’s stock, you’ll need to divide the annual dividend per share that a company pays by the price for one company share.

Learn more about dividend per share

 

So, if a company paid an annual dividend per share of $5, and the price for one share was $100, the dividend yield calculation would look something like what we have below. Remember, dividend yield is always shown as a percentage – so although $5 ➗ $100 is 0.05, we need to multiply that by 100 to get a percentage. 

 

H2What is dividend yield?
OverviewDividend yield helps you to understand how much a company pays out as a dividend each year compared to its share price. It’s displayed as a percentage, and is used by investors to see the dividend earnings they can earn on their investment in the company.

This is useful because even though investing should be a long-term game, getting an annual dividend from your investments can help to provide you with a form of income in the present. Or, you can choose to reinvest your dividend back into the company - which will help you to supercharge the effects of compound interest.

Investing glossary

It's important you know

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest.

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