What is Dividend Yield?
Dividend yield is a simple way to measure dividends of different priced stocks on a level playing field.
The dividend of a stock is the cash that a company pays its shareholders (maybe you!). Dividends have no guarantee behind them; they can be raised, lowered or eliminated.
The dividend yield is one year of dividends divided by the stock price. This gives us a percentage that allows us to compare the dividends of two differently priced stocks. It is very similar to the rate of return you’d get on a savings account.
For a real world example Wells Fargo(WFC) closed at $35.57. It has dividends over the last 12 months were $1.12 per share. When we divide 1.12 by 35.57 we get 3.15%. Figuring the dividend yield is that easy. Most investing sites will calculate this for you, but it is important to understand what it means.
The dividend yields gives us a rough estimate of what amount of cash we would expect the company to pay us per dollar that we invest.
Dividends can be a very powerful and steady contribution to your overall portfolio performance. More details on this will follow.