Long-term investing
Dividend yield
Definition
Dividend yield is the annual dividend per share divided by the share price: a $50 stock paying $2 a year yields 4%. Because the price sits in the denominator, the yield rises when the price falls, so an unusually high yield can mean the market expects a cut.
Example
Say a $60 stock pays $1.80 a year, a 3% yield. If bad news drives the price down to $36 while the dividend stays at $1.80, the yield jumps to 5% and looks more attractive on a screen. But if the company then halves the dividend to $0.90, the yield at $36 drops to 2.5%: the 5% reflected the old dividend, not the next one.
Hypothetical numbers, for illustration only.
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