How it works
The formula is simple: (annual dividend per share / current share price) × 100. Trailing yield uses the past 12 months of dividends; forward yield uses the next 12 months of expected dividends based on the most recent declared dividend annualised. Both views are useful. Yield moves inversely with price: a 50 percent price drop without dividend change doubles the yield, which often signals stress, not opportunity.
Example
Verizon pays $2.66 annualised at a price of $40, giving 6.65 percent yield. Procter & Gamble pays $3.76 at $145, giving 2.6 percent. Both are stable payers, but Verizon’s higher yield reflects market doubts about long-term growth. Coca-Cola at $1.84 on $60 yields 3.1 percent; Realty Income (REIT) at $3.05 on $54 yields 5.6 percent because REITs are required to pay out 90 percent of taxable income.
Why it matters
High yield is not automatically attractive. Yields above 6 percent often signal a market expectation that the dividend will be cut. Always check the payout ratio (dividends paid / earnings); above 80 percent for non-REITs is fragile. Better to focus on dividend-growth history: companies that have raised dividends for 25+ years (Dividend Aristocrats) have shown durable capital allocation. Yield is a starting filter, never the entire thesis.
