What is dividend yield?

Dividend yield is the income an investment pays out in dividends over a year, expressed as a percentage of its current price. It tells an investor how much cash income each euro invested generates at today's price, before any change in the price itself.

The formula

For a single stock:

\text{Dividend yield} = \frac{\text{Dividends per share over 12 months}}{\text{Current share price}}

For a portfolio, the yield is the total dividend income divided by the total value — the same as the value-weighted average of the holdings' yields:

y_p = \frac{\sum_i D_i}{\sum_i V_i} = \sum_i w_i \, y_i

where $D_i$ is the yearly dividend income from holding $i$ , $V_i$ its current value, $w_i$ its weight and $y_i$ its own yield. Holdings that pay no dividends count with a yield of zero.

A simple illustration

Holding	Value	Yield	Yearly dividends
Insurance stock	€10,000	5.0%	€500
World ETF (distributing)	€30,000	1.8%	€540
Growth stock	€10,000	0.0%	€0
Portfolio	€50,000		€1,040

y_p = \frac{1{,}040}{50{,}000} = 2.08\%

Accumulating funds reinvest their dividends internally. Their holdings still yield dividends, but nothing is paid out as income.

How to read it

Yields differ by sector and region. Utilities, telecoms, banks and energy companies tend to have high yields, technology companies low ones. European markets have historically yielded more than the US market.
Price moves change the yield. When a stock's price falls and its dividend stays the same, its yield rises — which makes a high yield ambiguous.
Yield is only part of the return. Total return adds the price change: a high-yielding stock with a falling price can return less than a low-yielding one that grows.

Why a high yield can mislead

A very high yield is often a warning rather than a bargain. It can mean that the market expects the dividend to be cut, or that the price has fallen because the business is in trouble. Last year's dividend divided by today's lower price produces an attractive figure that may not survive the next dividend announcement — a yield trap.

The payout ratio — the share of profits paid out as dividends — and the history of dividend growth help to judge whether a yield is sustainable.

A worked example

Worked through on a sample portfolio. The figures below are that portfolio’s, not yours.

What is my portfolio dividend yield?

I show a trailing‑12‑month dividend yield of 0,84% on your current portfolio value (last 12 months income 1.167,00 € divided by portfolio value 138.999,45 €). On cost, the trailing‑12‑month yield is 1,47%.

See these numbers for your own portfolio

Floreo works out every figure on this page from your own holdings — returns, risk, allocation, currencies — and the assistant explains them the way this page does. Import from your broker, or try it on the sample portfolio first.

Start Demo

The demo opens straight away on a sample portfolio — no account needed.