Annual dividends per share divided by share price. The cleanest "this stock pays me X% per year" number.
Formula
Dividend Yield = Annual Dividends per Share / Share Price
What it is
Annual dividends per share / share price. A 4% dividend yield = $4 of annual income per $100 invested.
What "good" looks like
5%+: high - usually signals either a deeply undervalued business OR a stretched payout ratio that may not be sustainable
2–5%: typical for mature, capital-returning businesses
0.5–2%: signals the business is reinvesting most of its cash flow
0%: growth-mode (no dividend) - common for tech and early-stage companies
What matters more than the yield itself
1. Dividend growth rate: a stock yielding 2% growing dividends 15%/year compounds faster than a stock yielding 5% with stagnant dividends
2. Payout ratio: dividends / earnings. Above 80% is unsustainable; above 100% is a red flag
3. History: 20+ years of uninterrupted dividend payments = strong capital-allocation discipline
Watch for "yield traps"
A stock at 12% dividend yield is rarely a bargain. Usually the share price has collapsed because the market expects the dividend to be cut. Examples: GE in 2018, AT&T in 2022. Always check whether free cash flow covers the dividend before buying for yield.