The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. In this case, it is the average dividend payment over the last five years divided by the average market capitalisation in each year. Comparing this yield versus the current yield may give an indication as to whether the stock is undervalued.
Geraldine Weiss' investment approach was very focused on comparing historic average versus current yield - as she wrote, "I realized that each of these stocks has its own individual profile of value, its own criteria for high and low dividend yield. Some stocks would be undervalued when the yield would be 4% or 5% or 6%, and some would be undervalued when the yield hit 2% or 3%. But it was the repetition of the high yield that would indicate an undervalued area (time to buy) and the repetition of a low yield that would indicate an overvalued area (time to sell)."
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