The dividend yield represents the ratio between the stock price paid and the dividend paid. A stock trading at $100 per share, with a dividend that amounts to $5 per year, you would divide the $5 by $100 and turn it into a percentage. In this case, the yield would be 5%.
Why It's Important
You will typically find the dividend yield for a stock when trying to research whether it is a good investment. Remember, not all stocks pay dividends! The example below is from Yahoo Finance. The current dividend yield for GE is 0.50%. This is extremely low as GE has been having a tough year. In order for companies to pay dividends, they have to be doing well enough to distribute extra funds. Always look at the financial statements before you dive into an investment.