In stock-market analysis, how is a stock’s dividend yield calculated?

In stock-market analysis, a stock’s dividend yield is calculated by dividing its annual dividend by its share price.

The result is usually expressed as a percentage. For example, if a company pays $2 in annual dividends and its shares trade at $40, the dividend yield is 5%. Investors use the measure to compare the cash income offered by different dividend-paying stocks, though it does not describe total return.

Yield changes when either the dividend or the share price changes. If the share price falls while the dividend stays the same, the quoted yield rises mathematically. That higher yield may signal an opportunity, but it can also reflect concern that the dividend may be cut.

Dividend yield is a backward-looking or estimate-based measure depending on whether it uses past payments or projected payments. Investors should also examine payout ratios, earnings, cash flow, and the company’s dividend history.