Dividend Yield
The annual dividend payment of a stock or fund expressed as a percentage of its current price.
Dividend yield tells you how much income an investment generates relative to its price. A stock priced at $100 paying $3 in annual dividends has a 3% yield. High dividend yields can signal a mature, profitable company — or a struggling one whose stock price has fallen. Dividend investing is popular for income-oriented portfolios and retirees, but total return (dividends + price appreciation) matters more than yield alone. Reinvesting dividends through a DRIP (Dividend Reinvestment Plan) amplifies compound growth. Dividend taxes also vary by jurisdiction, making tax-advantaged accounts ideal for dividend-heavy strategies.
Example
A stock trading at $80 pays $2.40/year in dividends. Dividend yield = $2.40 / $80 = 3%. If the price drops to $60 but the dividend stays $2.40, yield rises to 4%.
Related terms
ETF (Exchange-Traded Fund)
A fund that holds a basket of assets (stocks, bonds, or commodities) and trades on a stock exchange like an individual stock.
Compound Interest
Interest earned on both the initial principal and the accumulated interest from previous periods, creating exponential growth over time.
Asset Allocation
The strategy of dividing investments among different asset classes — stocks, bonds, real estate, cash — to balance risk and return according to your goals and risk tolerance.
Explore more terms
Stock (Share)
A share of ownership in a company that entitles the holder to a portion of its profits and assets.
Passive Income
Earnings that require little ongoing effort to maintain, such as dividends, interest, or rental income.
ROI (Return on Investment)
A measure of profit relative to the amount invested, expressed as a percentage.
Capital Gains (and Tax)
The profit from selling an asset for more than you paid; it is often subject to capital gains tax.
P/E Ratio
Price-to-earnings ratio, a stock's price divided by its earnings per share, used to gauge how expensive it is.
Dollar-Cost Averaging (DCA)
An investment strategy of regularly investing a fixed amount regardless of market price, reducing the impact of volatility over time.