Investing Basics

Dividend Yield - High & Low Dividend Yields - Tool for Investors

The dividend yield of a company's stock offerings is the yearly total dividend payments that the corporation makes divided by its market capitalization. The dividend yield can also be expressed as dividend per share divided by the share price.

The Two Dividend Yield Formulas

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Hypothetical Example

Imagine the current stock price of a XYZ Corp. is $42.45 Also, the annual dividend payment per share that it pays out is $1.25. Using this information, what is the dividend yield?

Dividend Yield = Dividend per Share / Current Share Price
Dividend Yield = $1.25 / 42.45
Dividend Yield = 0.0295 = 2.95%

Interpretation of Dividend Yield

Do not use the Dividend Yield as the lone decision making factor when picking stocks. This is because the higher the dividend yield doesn't mean the better the stock is. For example, if a company is experiencing rapid growth, it will refunnel most of its retained earnings into research & development to create more market share in various other industries. Over the longer term, this company's stock price just goes higher! Microsoft is a good example.

Dow Jones Industrial Average Dividend Yield

The Dow Jones Industrial Average takes the dividend yields of the top 30 highest market capitalization firms in the US and averages them out. It is considered to be one of the most important indicators of the strength of the US stock market. The Dow Jones Industrial Average (DJIA) has fluctuated between 3.2% (in high market returns in 1929) and 8% (during low market returns).

The highest ever Dow Jones Dividend Yield was seen in 1932 when it was at about 15%. On the other hand, the lowest ever Dow Jones dividend yield was seen in the stock market highs of 200, when it reached a record low of 1.4%

The below is a sample of the 30 companies that Dow Jones Industrial Average uses when calculating the average dividend yield.