dividend yield
Imagine renting out a flat you bought for 200,000; if it brings 8,000 of rent a year, that is a 4% cash return on what you paid, regardless of whether the flat's price rises or falls. Dividend yield measures the same cash return for a share of stock: out of the price you pay for a share, what percentage comes back to you each year as cash dividends.
Dividend yield equals the annual dividend per share divided by the market price per share, as a percentage. If a stock pays 2 a year in dividends and trades at 50, its dividend yield is 2 / 50 = 4%. Notice the price is in the denominator, so the yield moves opposite to the share price: if the stock falls to 40 while the dividend holds at 2, the yield rises to 5%. The yield captures only the cash income from holding the share — it ignores any gain or loss from the share price itself changing.
Dividend yield matters most to income-focused investors — retirees, pension funds, anyone wanting a steady cash stream rather than betting on price growth. It also lets a dividend-paying stock be compared to bonds and savings rates. The caveats are important: a very high yield is often a warning, not a gift — it usually means the price has crashed on bad news, and the dividend may soon be cut. And many healthy companies, especially fast-growing ones, pay no dividend at all and reinvest instead, giving a yield of zero while still rewarding owners through a rising share price.
A stable bank's stock pays 3 a year and trades at 60, a dividend yield of 5%. A growth software firm pays no dividend at all (yield 0%) but its share price has tripled — two valid ways of rewarding owners, suited to very different investors.
Cash now versus growth later — a zero yield is not a failing.
An unusually high dividend yield is often a red flag, not a bonus: it usually means the share price has crashed, and the dividend may be about to be cut.