Definition of Dividend Yield
Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. It is expressed as a percentage and is calculated by dividing the annual dividend per share by the current share price.
Formula: Dividend Yield = (Annual Dividend per Share ÷ Current Share Price) × 100
A high dividend yield (4–6%+) is attractive for income-seeking investors, particularly retirees. However, an unusually high dividend yield can be a warning sign — it may indicate the share price has fallen sharply (which automatically increases yield) due to fundamental problems with the company. Indian PSU stocks (like Coal India, ONGC) and some FMCG companies typically offer consistent dividend yields.
For SIP/growth investors focused on long-term wealth creation, dividend yield is less important than the company's earnings growth and reinvestment strategy. Companies that retain earnings and reinvest in growth often create more shareholder wealth than those paying high dividends.