- 1Dividend Yield = Annual Dividends Per Share ÷ Stock Price
- 2Higher yield means more cash income per dollar invested
- 3Very high yields (>8%) often signal a dividend cut is coming
- 4Dividend growth rate matters as much as current yield
- 5Total return = price appreciation + dividends
#What Is Dividend Yield?
Dividend yield expresses a company's annual dividend payment as a percentage of its stock price. It answers: for every $100 I invest, how much cash do I receive per year?
Dividend Yield = (Annual Dividends Per Share ÷ Current Stock Price) × 100
If a stock pays $3.00 in annual dividends and trades at $100, its yield is 3.0%.
#Forward vs. Trailing Yield
| Type | Calculation | Best For |
|---|---|---|
| Trailing Yield | Past 12 months of dividends ÷ price | Historical accuracy |
| Forward Yield | Projected next 12 months ÷ price | Future income planning |
Most financial sites show forward yield since dividends are forward-looking income. But if a company just cut its dividend, forward yield may not reflect reality yet.
#What's a Good Dividend Yield?
| Yield Range | Typical Examples | Notes |
|---|---|---|
| 0% | Growth stocks (AMZN, GOOG) | No income, all reinvestment |
| 0.5–1.5% | Tech blue chips (AAPL, MSFT) | Token yield, focus on growth |
| 1.5–3.0% | S&P 500 average | Balanced income and growth |
| 3.0–5.0% | Utilities, REITs, mature companies | Solid income |
| 5.0–8.0% | High-yield stocks | Good income but watch for risk |
| > 8% | Distressed or declining | Likely unsustainable — proceed with caution |
The yield trap: Extremely high yields usually occur because the stock price has crashed. The market is pricing in a dividend cut.
#Dividend Growth vs. High Yield
Two approaches to dividend investing:
High Yield
Buy the highest-yielding stocks now for maximum current income. Risk: those dividends may get cut.
Dividend Growth
Buy stocks with moderate yields but consistent dividend increases. Over time, your yield on cost rises.
A stock yielding 2% today that grows dividends 10% annually will yield 5.2% on your original cost in 10 years.
#Key Dividend Metrics
- Payout Ratio — Dividends ÷ Earnings. Below 60% is generally sustainable
- Dividend Growth Rate — Annual increase in the dividend per share
- Dividend Coverage — Earnings ÷ Dividends. Above 1.5x is healthy
- Years of Consecutive Growth — "Dividend Aristocrats" have 25+ years
#How Dividends Affect Factor Scores
In our model, we don't have a dedicated dividend factor, but dividends influence several factors:
- Value: High-yielding stocks often score well on earnings yield
- Profitability: Companies with steady dividends tend to be consistently profitable
- Stability: Dividend payers are typically lower-volatility
Last updated: February 5, 2026