Dividend yield is the amount paid as dividend by a company in a year in relation to the prices of its shares. This is the return obtained from investing in a stock if there is no capital gain. Calculation of dividend yield is done by dividing the annual dividend for each share by the price of each share. Investors historically prefer high dividend yields.
Larger, more established companies attain higher dividend yields than small, new and growth-oriented companies. Small companies generally do not provide dividends to their customers. The company management decides the amount of common share dividend yield. These dividends are paid according to the earnings made by the company.
Because of this, dividend amounts vary from year to year, and may not be paid at all.The preferred share dividend yield is always paid because it is mentioned in the prospectus of the company. This yield provides multiple options to the owner of preferred shares who can calculate various yields throughout the life of the security.
However, the calculation perspectives will be different for the shareholders and the company. The Dow Jones Industrial Average is an average of the annual dividends of thirty American companies.
The Dow Jones dividend yield varies between 3.2% and 8%, and is used as an indicator for the state of the American stock market.