Dividend Yield Calculation Formula: Examples & Pitfalls
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Key terms
- Dividend YieldAnnual dividend payment divided by the stock price, expressed as a percentage. A 5% dividend yield means the stock pays $5 annually for every $100 invested.
- DividendA portion of a company's earnings distributed to shareholders, typically paid quarterly. Dividends provide a steady income stream in addition to potential stock price appreciation.
- YieldThe income return on an investment, expressed as a percentage. For bonds, it's the interest payment divided by the price. For stocks, it's the annual dividend divided by the stock price.
- Annual Percentage Yield (APY)The real rate of return earned on an investment, taking into account the effect of compounding interest. APY is typically higher than the stated interest rate.
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