dividend yield

The annual dividend income per share received from a company divided by its current share price. Put simply - how much income are you getting out of the company for the capital you've got locked up in it?

Dividend yields are calculated on the net dividend.

Example: a company declares a net dividend of 2.1p per share. Its share price is 150p.

To get the dividend yield, divide the net dividend by the current share price:

2.10 /150 = 1.4%

The dividend yield is 1.4%. Note that the higher the share price, the lower the dividend yield. Using the above example, if the shares rose to 200p, the yield would fall to 1.05%

2.10/200 = 1.05%

The problem for investors is that if a company has a low dividend yield compared to other companies in its sector, it can mean two things. Either it means the company's share price is high because the market reckons it's got great growth prospects and doesn't care too much about income, or it means that the company's a busted flush and can't afford to pay decent dividends.