A ratio that relates the annual dividends from a common or preferred stock to the stock’s market price per share:

Dividend yield = dividends per share/ share price

For example, if the common stock of company XYZ is trading at $105, its dividends of $1.7 per share will provide a dividend yield of:

Dividend yield= 1.7/105 = 1.62%

This ratio measures the current return on a given common stock but doesn’t take into account potential gains and losses in the market value of that stock. In general, dividend yields increase as share prices fall, and vice versa. This generalized fact means an investor should concentrate on searching for modestly priced stocks. Perhaps this has poised dividend yields as a predictor of share price gains. Oversized dividend yields are typically defined as 5% at least or more than three times the market’s average yield.