What is dividend yield and why is it important?

What is dividend yield and why is it important?

Dividend yield is a financial ratio that shows how much a company pays in dividends each year relative to its stock price. It's important because it helps investors assess the income potential of a stock.

How do you calculate dividend yield?

You calculate dividend yield by dividing the annual dividends per share by the stock's current price per share. The formula is: Dividend Yield = Annual Dividends / Current Stock Price.

What is a good dividend yield?

A good dividend yield can vary by industry, but generally, a yield between 2% to 6% is considered attractive for most investors.

Are high dividend yields always better?

Not necessarily. A very high dividend yield can be a red flag, indicating that a company's stock price has fallen significantly or that the company may not sustain its dividend payments.

Can dividend yield change over time?

Yes, dividend yield can change as companies adjust their dividend payouts or as stock prices fluctuate. It's important to monitor both.