Which formula is used to calculate dividend yield?

The formula used to calculate dividend yield is the annual dividend divided by the stock price. This calculation provides an indication of the return on investment for a stock in terms of dividends received relative to the price of the stock.

To elaborate, dividend yield expresses the amount of cash flow an investor can expect to generate for each dollar invested in a company’s stock, which is particularly useful for evaluating the income potential of stocks, especially for income-focused investors. By calculating this yield, investors can compare the income-generating capabilities of various investments, helping them make informed decisions. The annual dividend represents the cash payments made to shareholders, while the stock price reflects the current market value of the shares, yielding a percentage that represents the income return. This makes it a fundamental metric in assessing investments, particularly in income-generating assets.