Dividend Yield

Dividend yield lets investors compare the income produced by different shares, or compare shares with other income investments such as bonds and savings accounts.

For example, a company paying annual dividends of 2.40 per share, with a share price of 60, has a dividend yield of 4%. An investor buying 10,000 worth of shares would expect to receive about 400 a year in dividends, if the dividend stays the same.

Dividend yield moves when either the dividend or the share price changes. If the share price falls to 48 while the dividend stays at 2.40, the yield rises to 5%.

A high dividend yield can be attractive, but it can also be a warning sign. Sometimes a yield is high because the share price has fallen sharply, often because investors expect the company's profits, and possibly its dividend, to decline. Such situations are sometimes called yield traps.

Dividend yield shows only part of the return from a share. Total return also includes changes in the share price. Many growing companies pay low or no dividends but may still deliver strong total returns.