What Is Dividend Yield in the Stock Market?

What Is Dividend Yield?

By Jason Hall – Updated Nov 7, 2024 at 2:16 PM

Key Points

Dividend yield calculates future income from a stock; annualize dividends to find yield.
Stock dividends vary; consider total return, including share price changes and dividends.
A high dividend yield might signal company distress, impacting investment security.

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

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. So unlike a bond, the yield on a stock is not set in stone. It's most useful as a metric to help determine if a stock trades for a good valuation, to find stocks that meet your needs for income, and to let you know if a dividend may be in trouble.

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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.

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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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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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 and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.