Short definition: Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.
Explanation: It is expressed as a percentage and is calculated by dividing the annual dividend per share by the current market price per share. Dividend yield is an important factor for income-focused investors as it provides an indication of the return they can expect to receive from their investment in the form of dividends.
Example: If a company pays an annual dividend of $2 per share and its current share price is $50, then the dividend yield is 4%.
Additional information (optional): Dividend yield can vary significantly across companies and industries. Some companies may have high dividend yields but lower growth potential, while others may have lower dividend yields but higher growth potential. Investors should consider both dividend yield and growth prospects when making investment decisions.