The dividend yield is the cash yield (comparable to the interest rate on a savings account) that we expect to receive on a share we own. For example, if I spent £100 on one share with a 5% dividend yield, then I would receive £5 in cash payments (dividends) each year I held the stock. As well as it being a way of gauging the yield on the stock, it can also be a way of identifying undervalued stocks. A company with a dividend yield significantly above current interest rates might be considered cheap though the precise figure changes over time, though many factors come in to play here.