What it is
Dividend yield expresses the annual dividend as a percent of the current share price.
Two flavours
- Trailing yield uses the past 12 months of declared dividends.
- Forward yield uses the expected next 12 months.
Yield + growth = total return
Investors think of dividend stocks as offering two return components: the yield itself plus any capital appreciation in the stock. A high yield with no growth, or even a falling stock, is not the same as the same yield with a growing business.
A very high yield can sometimes signal that the market expects the dividend to be cut — investors don't believe it will be sustained. Always look at the payout ratio (dividends ÷ earnings) to see if it's covered.