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What Is Dividend Yield?

By Jason Hall – Updated Nov 9, 2025 at 11:49 PM EST

Key Points

Dividend yield measures annual dividends as a percentage of stock price, aiding income prediction.
To calculate yield: annualize quarterly/monthly dividends and divide by stock price.
Consider total return; appreciation plus dividends, for long-term investing strategy.

Dividend yield is a stock's annual dividend payments to shareholders expressed as a percentage of the stock's current price. This number tells you what you can expect in future income from a stock based on the price you could buy it for today, assuming the dividend remains unchanged.

For example, if a stock trades for $100 per share today and the company's annualized dividend is $5 per share, the dividend yield is 5%. The formula is: annualized dividend divided by share price equals yield. In this case, $5 divided by $100 equals 5%.

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Infographic defining and showing the calculation for dividend yield — Image source: The Motley Fool

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Chart showing Realty Income dividend growth since 1996. — Source: YCharts.

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Chart showing total returns for AT&T and Verizon since June 2017. — T Total Return Level data by YCharts.

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When you look past the dividend yield at the underlying business, both AT&T and Verizon have struggled under the weight of unsuccessful acquisitions and the high costs of deploying 5G to stay competitive. The lesson: A higher yield is not a promise of future income. It can be a warning sign that a company is struggling.

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Valuation

The process of determining the financial worth of an asset, property, or business based on various factors and market conditions.

Dividend yield can also be a useful tool to help with valuation. If the dividend yield is significantly different than its historical level or is significantly different from similar companies, it can help inform whether a stock is trading for a better -- or worse -- valuation. It can also serve as a warning sign if the yield is significantly higher than similar companies.

The yield is only the starting point; knowing what is happening with a company's operations and cash flows is important to help keep the dividend yield in the proper context.

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Chart showing dividend growth for Mastercard and American Express since 2010. — MA Dividend data by YCharts.

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About the Author

Jason Hall is a contributing Motley Fool stock market analyst with more than a decade of experience writing about dividend stocks and long-term investing. He has been with the company since 2012 and previously spent over 10 years in technical sales in the printing and information services industry. Jason also founded and operated a small food manufacturing business.

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@thesmattering

American Express is an advertising partner of Motley Fool Money. Jason Hall has positions in Mastercard and Realty Income. The Motley Fool has positions in and recommends Mastercard and Realty Income. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Dividend stability: Does it have a margin of safety between how much it earns and how much it pays in dividends? The payout ratio, which is the percentage of profits that a company spends on dividends, is a useful way to measure this. This metric is best used over an extended period, not just a single quarter or even a year, and it can be augmented with the cash payout ratio since there are many non-cash expenses that can affect a company's net income going by generally accepted accounting principles (GAAP).

Competitive advantages: How does the company continually beat its competitors or keep them at bay? A cost advantage, the network effect, and a brand that people will pay a premium for are some examples of durable competitive advantages, sometimes called economic moats.

Growth prospects: Is the company in an industry that is growing quickly or is demand for its products or services shrinking? Even the best company in a declining industry may find it harder to maintain (much less increase) its dividend over time, unless it can consistently take more market share.

Dividend traps: High yields aren't bad, but, in some cases, they are a sign of trouble. Certain industries tend to pay high yields, including REITs, as well as utilities, refiners, and pipeline operators that may have low growth prospects. But if a stock's dividend yield is far higher than those of its nearest competitors or peer companies, that could indicate a dividend yield trap or value trap, meaning a company whose yield looks high because the stock price has fallen and there's a good probability that the dividend payout is going to get cut.

What Is Dividend Yield?

Key Points

Valuation

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7 Best Monthly Dividend Stocks for April 2026

How to Calculate Dividends (With or Without a Balance Sheet)

Dividend Kings of 2026

About the Author

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