Dividend yield refers to a stock's annual dividend payments to shareholders, expressed as a percentage of the stock's current price.

For example, Microsoft pays an annual dividend of \$1.44, and the stock trades for \$53.00 as of this writing. Therefore, Microsoft's dividend yield is:

It's important to realize that a stock's dividend yield can change over time, either in response to market fluctuations or as a result of dividend increases or decreases by the issuing company.

Calculating dividend yield from quarterly or monthly dividends
Most stocks pay quarterly dividends, and some even pay on a monthly basis. In this case, in order to determine a stock's dividend yield, you need to annualize the dividend by multiplying the amount of a single payment by the number of payments per year -- four for stocks that pay out quarterly and 12 for monthly dividends.

Total return
Dividends are one component of a stock's total rate of return, the other being changes in the share price. For example, if a stock's price goes up by 5% this year and it pays a 3% dividend yield, then your total return is 8%. If you're investing for the long term, be sure to consider a stock's total return potential in addition to the yield.