Dividend yield
Dividend yield is the annual dividend per share expressed as a percentage of the current share price, measuring the cash income return a shareholder receives relative to the market price paid.
FrameworkRatio analysis
See it move
Coastal Energy plc pays an annual dividend of €0.80 a share; the shares trade at €16.00. Dividend yield is €0.80 divided by €16.00, times 100, or 5.0%. A comparable bond yielding 3.5% offers less income, though equities carry additional risk and dividends are never guaranteed the way a bond coupon is.
The formula
Variables
- annual dividend per share (€)
- current market price per share (€)
Dividend yield rises when the share price falls and vice versa. It measures cash income return relative to the current market price, not relative to the original cost of the investment.
Check yourself
A company's annual dividend per share remains unchanged at €0.80. During the year the share price rises from €16.00 to €20.00. What happens to the dividend yield?