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.