By the book, stock yield is the simple ratio of annual dividends divided by the share price.

What is Stock Price? definition and meaning

Yield can be calculated based on dividends paid over the past year or dividend expectations for the next. Investors looking more for payouts from stocks rather than price appreciation tend to favor higher-yielding stocks over lower-yielding stocks, but stock yields only tell you what to expect from an income perspective, as if the stock were a perpetual bond.

This type of investing on yield alone, however, overlooks several risks to income from the dividend and risks to principal from your investment. Dividends paid out by most companies are taxed at capital gains rates, assuming you hold the stock for a certain time period: Dividends paid out by real-estate investment trusts, on the other hand, are taxed at income tax rates.

Master-limited partnerships, currently popular because of their high payout rates, have even more complicated tax accounting for distributed income. Payout ratio is the amount of dividends relative to net income.

What Is a Stock Yield? - Ask SmartMoney - MarketWatch

It can be an indicator of how much slack the company has in absorbing earnings hits before cutting dividends. The yield on the stock, however, will move up and down with the price.

11 Safe High-Yield Dividend Stocks for Times of Volatility and Uncertainty - TheStreet

When a stock moves higher, the yield will necessarily go down and vice versa. Ask SmartMoney has a single, simple mission: Answers are written by the staff of SmartMoney.

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