Definition
Dividend yield expresses a stock's annual dividend as a percentage of its current share price. It shows the cash income a share pays relative to its price, not the total return.
How it works
Yield is usually calculated on trailing dividends (the last twelve months actually paid) or forward dividends (the amount announced or expected). Because the price sits in the denominator, a falling share price raises the yield even when the dividend is unchanged.
That is why a very high yield can be a warning sign rather than a bargain: the market may be pricing in a dividend cut. Comparing the dividend with earnings and cash flow shows whether it is covered, and the yield says nothing about capital gains or losses.
Formula / convention
Dividend yield = Annual dividend per share ÷ Current share price × 100%
Illustrative example
Illustration with fictional figures: a company pays HK$0.80 per share a year and trades at HK$20.00, giving a yield of 0.80 ÷ 20.00 = 4.0%. If the price falls to HK$16.00 and the dividend is unchanged, the yield rises to 0.80 ÷ 16.00 = 5.0%, yet a holder who bought at HK$20.00 is down HK$4.00 per share, equal to five years of that dividend.
What to watch for
A high yield may signal market doubt about whether the dividend can be maintained, and an unsustainable payout can be cut at short notice. Yield alone is not a measure of quality or of total return.