Dividend yield is a crucial metric for long-term investors to evaluate whether a stock is worth buying. It helps you assess the income you can potentially earn from your investment. Here’s how it works:

What Is Dividend Yield?

A dividend is a portion of a company’s profit paid back to shareholders.
Dividend yield represents the percentage of annual dividends relative to the stock price.
It’s calculated by dividing the total amount of dividends paid during the year by the price of the investment at the beginning of that year.

The Formula:

The dividend yield formula is straightforward:

Dividend Yield = Current Share Price / Annual Dividends Per Share​

Example Calculation:

Suppose a company pays an annual dividend of $1.50 per share, and the current stock price is $50.

Using the formula: Dividend Yield = 1.50/ 50 ​= 0.03 = 3%

This means you would earn 3% in dividends per year from an investment in the company’s stock at the current price, assuming the dividend payout remains unchanged.

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