<p>Dividend yield is a fundamental‑analysis metric that measures the cash return a shareholder receives from a stock’s dividends relative to its current market price. It is calculated by dividing the annual <a href="/NewSite/encyclopedia/dividend/" class="ency-link">dividend</a> paid per share by the stock’s price per share and expressing the result as a percentage. This figure helps investors gauge the income‑generating potential of an equity investment and compare it across companies or sectors.</p>

<h2>How It Works</h2>
<p>To compute dividend yield, first determine the total dividends a company expects to pay over the next twelve months. If the firm pays quarterly, multiply the most recent quarterly dividend by four, or sum the last four quarterly payments. Next, obtain the stock’s current trading price. Divide the annual dividend amount by the share price and multiply by 100 to convert the ratio into a percentage. For example, if a company pays $2.00 per share annually and its stock trades at $40.00, the dividend yield is (2.00 / 40.00) × 100 = 5 %.</p>

<h2>Why It Matters</h2>
<p>Dividend yield provides a quick snapshot of the income return an investor can expect from holding a stock, independent of price appreciation. Income‑focused investors, such as retirees, often prioritize higher yields when building portfolios that need steady cash flow. However, an unusually high yield can signal risk: it may result from a falling stock price rather than generous payouts, or indicate that the dividend is unsustainable. By comparing yields within the same industry, investors can identify companies that offer attractive income relative to their peers while assessing the sustainability of those payouts.</p>