Calculating a stock's dividend yield is simple, and provides a way to accurately compare dividends from different stocks.A dividend yield is a ratio — expressed as a percentage — that shows how much a company pays its shareholders in dividends relative to its share price.
But what's considered a "good" dividend — and how do you identify a company that's paying one? This is where dividend yield comes in. This financial metric evaluates a dividend payout and provides a way to compare it to those of other stocks.that companies make to their shareholders: a piece of the profits as a perk for investing in the organization.
In this sense, dividend yield isn't necessarily an indicator of "good" or "bad" stocks. Instead, the formula is best utilized for evaluating the risks and rewards of investing in a company and choosing which stocks have the best potential for your investment goals.Determining a stock's dividend yield is actually a pretty simple equation.Shayanne Gal/Business Insider
Alternatively, a company's full annual report usually lists the annual dividend per share, so you can calculate it manually.Generally speaking, a dividend yield can help you spot the right investment opportunities for your income needs. More specifically, a dividend yield can help you:The yield makes it easy to compare the relative value of the stock's share price to its peers. If the yield is in line with its peers in the sector, that's probably a good sign.
Consider our example above of the company that pays $4 annual dividend per share at $100 per share. Due to market conditions and poor management, let's say the share price drops to $50. The dividend yield is now 8%. That's a high dividend yield, but not for the right reasons.