Dividend yield is a financial ratio that compares a company's annual dividend per share to its stock price. It is expressed as a percentage and is calculated by dividing the annual dividend per share by the stock's current market price.
The dividend yield is an indicator of the income return on a stock investment, and it can be used by investors to compare the income return of different stocks. A higher dividend yield generally indicates a higher income return on the investment.
However, it's important to keep in mind that a high dividend yield alone does not necessarily indicate a good investment opportunity. A company with a high dividend yield may be paying out a high dividend because its stock price has fallen, and it may not be able to sustain its dividend payments in the long-term.
Additionally, a company that doesn't pay dividends may still be a good investment if it is growing and has a potential to increase its stock price.
It's also important to consider the company's financial health when evaluating dividend yield. A company that is financially healthy and has a history of paying and increasing dividends is more likely to continue paying dividends in the future.
Finally, dividend yield should be considered in the context of the overall investment strategy. Some investors prioritize income over capital appreciation and will therefore look for high dividend yielding stocks, while others may prioritize capital appreciation over income and will therefore look for stocks that have more growth potential.