A dividend yield represents the size of a company’s dividend relative to its stock price. It is expressed as a percentage.
To calculate the dividend yield, one must divide the company’s annual dividend per share by the current price per share. For example, if a company pays an annual dividend per share of £4 and the current price of the stock is £20, then the dividend yield is 20%.
This also means that if the stock’s price rises, so will the dividend yield. On the other hand, if the company’s stock declines, the dividend yield will drop as well.
The dividend yield is normally calculated using the data from the last annual earnings report. However, dividends are distributed on a quarterly basis and because of that, investors and analysts often look at the dividend in the most recent quarter and multiply it by four to compute the annual dividend yield. Still, it is important to keep in mind that the yield can vary because not all companies pay equal dividends each quarter.
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