Glossary

Dividend yield

The dividends a share paid over a year, divided by its current price.

Dividend yield is usually calculated as the dividends per share paid over the last twelve months, divided by the current share price. A $100 share that paid $3 in dividends has a 3% yield.

A yield rises when the price falls, so a very high yield often means the market expects a cut. Check whether the dividend is covered by earnings and free cash flow before trusting it.

Compare a yield with the company's own history and with its peers, not with a savings rate alone.

Try it: Dividend calculator

  • Dividend payout ratio: The share of a company's profit it pays out as dividends.
  • Free cash flow: The cash a business produces from its operations after paying for the investment it needs to keep going.
  • Share buyback: A company buying its own shares, so each remaining share owns more of the business.

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