Dividend Yield
InvestingDefinition
The cash a stock or fund pays you each year as a percentage of its price. It tells you how much income you get for every dollar invested, before any price gain or loss.
Two versions are quoted: trailing (TTM) yield uses the dividends actually paid over the last 12 months, while forward yield uses the next 12 months of announced payments. They differ right after a dividend is raised or cut.
Because price sits in the denominator, the yield rises when the price falls. A very high yield (well above the market average, which has run around 1% to 2% for the S&P 500 in recent years) often means investors expect a cut: the classic yield trap. Check the payout ratio and dividend coverage before trusting it.
Why it matters for investors: dividends have supplied a large share of the stock market's long-run total return. Reinvested, a steady yield compounds; spent, it is income you never have to sell shares for.
Two versions are quoted: trailing (TTM) yield uses the dividends actually paid over the last 12 months, while forward yield uses the next 12 months of announced payments. They differ right after a dividend is raised or cut.
Because price sits in the denominator, the yield rises when the price falls. A very high yield (well above the market average, which has run around 1% to 2% for the S&P 500 in recent years) often means investors expect a cut: the classic yield trap. Check the payout ratio and dividend coverage before trusting it.
Why it matters for investors: dividends have supplied a large share of the stock market's long-run total return. Reinvested, a steady yield compounds; spent, it is income you never have to sell shares for.
Formula
Dividend yield = Annual dividends per share / Share price
Example
A stock trading at $50 that paid $2 in dividends over the past year has a trailing yield of $2 / $50 = 4%. If the price drops to $40 with the same dividend, the yield jumps to 5%, which is good news only if the dividend survives.
Related tool
Open the dividends tool on Arsenal.finance →