Dividend yield

The cash dividend paid over a year divided by the current share price - the income return actually received by a holder.

Example

A share at 40 paying 1.60 a year yields 4.0%.

Important

It is only part of the return. Total return is the yield plus the rate the income grows, which is why a low-yielding share can be the better holding and a very high yield is often a warning about durability.

Related terms

• Earnings yield — Earnings divided by price - the price-to-earnings ratio turned upside down. Expresses a share's price as a return, so it can be compared with other uses of the same money.
• Payout ratio — The share of earnings paid out as dividends. What remains is retained and reinvested in the business.
• Gordon growth model — The relationship that values a growing perpetual income stream as next year's income divided by the required return less the growth rate. The same formula produces a terminal value and a capitalisation rate.

Lessons that explain it

• The fund manufactures nothing: pass-through, minus costs — A fund's return is the weighted return of its holdings less what it charges. Knowing that changes what you are actually forecasting when you forecast a fund. (11 min)
• Yield-based valuation: pricing the income — Start from the money the asset actually pays out and the return you require, and the price falls out of the division. The simplicity is real, and it conceals the same growth assumption everything else makes. (11 min)

All 578 terms in the Investing glossary