Glossary · UK
What is Dividend Yield?
The annual dividend a share pays, expressed as a percentage of its current share price, used to compare the income return offered by different dividend-paying shares or funds.
Full Definition
Dividend yield expresses a company's (or fund's) annual dividend payment as a percentage of its current share price, calculated as annual dividend per share divided by share price, multiplied by 100, giving investors a quick way to compare the income return on offer from different shares regardless of how expensive or cheap each individual share happens to be in absolute pound terms. A share priced at GBP 10 that pays GBP 0.40 a year in dividends has a 4% dividend yield, and if the share price then falls to GBP 8 while the dividend payment stays the same, the yield rises to 5% purely because of the price change, which is why dividend yield moves in the opposite direction to share price for a given level of dividend, and why a very high yield can sometimes be a warning sign that the market expects the dividend to be cut, rather than simply a sign of a generous, sustainable payout. Investors seeking a regular income from their portfolio often build a strategy around higher-yielding shares or income-focused funds, but relying on yield alone without checking dividend cover (whether earnings comfortably support the payment) or the underlying business's financial health can lead to investing in companies whose dividend is unsustainable and likely to be cut. Dividend yield is typically quoted on a "trailing" basis (based on dividends actually paid over the last 12 months) or a "forward" basis (based on the dividend analysts expect the company to pay over the coming year), and the two can differ meaningfully if a dividend cut or increase is expected.