What is dividend yield?

• A. Dividend per share divided by price per share
• B. Total dividends / number of shares
• C. Price-to-earnings ratio
• D. Dividend per share times price per share

Answer: (A)

Dividend yield measures the cash return you get from a stock’s dividends relative to its current price. It’s calculated as dividend per share divided by price per share, usually shown as a percentage. For example, if a share pays 2 in dividends annually and trades at 40, the yield is 2 divided by 40, which equals 0.05 or 5%. This lets you compare how much income different stocks provide from their price, helping you judge income-generating potential across investments.

Keep in mind this focuses on income from dividends and doesn’t account for price changes, taxes, or growth in dividends. It’s also common to see yields based on trailing dividends or expected future dividends, which can differ if dividends are cut or raised. The other options mix up different ideas: total dividends divided by shares would give per-share cash, not the yield relative to price; the price-to-earnings ratio relates price to earnings, not dividends; and multiplying dividend per share by price per share mixes two unrelated quantities.