Although the dollar amounts of dividends are specified by the board of directors, investors often want to know how the dividend compares with other investments. The dividend yield, which is the dollar amount of the dividend divided by the common share price, yields a percentage allowing the investor to compare the stock to other investments, especially if the investor is primarily concerned about current income.
Dividend Yield = Annual Dividends Per Share / Current Stock Price
Example: If a stock pays a $1 quarterly dividend and the current stock price is $40 per share, then:
Dividend Yield = $1 x 4 / $40 = $4 / $40 = 10%
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