What is dividend yield and how is it calculated?

What is dividend yield and how is it calculated?

Dividend yield is a financial ratio that shows how much a company pays in dividends each year relative to its stock price. It's calculated by dividing the annual dividends per share by the price per share.

Can you give me an example of how to calculate it?

Sure! If a company pays an annual dividend of $2 per share and its stock price is $40, the dividend yield would be $2 / $40 = 0.05 or 5%.

What does a high dividend yield indicate?

A high dividend yield may indicate that a stock is undervalued or that the company is returning a significant amount of profit to shareholders. However, it could also signal potential risks.

Are there any risks associated with investing in high dividend yield stocks?

Yes, high dividend yield stocks can be risky. They may be in declining industries, and the high yield could be a result of a falling stock price. It's important to analyze the company's fundamentals.