The dividend yield shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. It is calculated as the historic or consensus forecast Annual Dividend per Share, divided by the current Price, multiplied by 100, and is stated on a net, rather than gross, basis.
In the absence of any capital gains, the dividend yield is the return on investment for a stock. A higher dividend yield is often considered to be desirable among many investors but it needs to be interpreted in light of the rest of the company's financials.
A high dividend yield may be considered to be evidence that a stock is under priced or alternatively it may be that the company has fallen on hard times and future dividends are at risk of being cut. Similarly a low dividend yield can be considered evidence that the stock is overpriced or an indication that future dividends may be higher. Many growth companies do not pay dividends, preferring to reinvest profits back into the business.
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