Final answer:
The dividend yield for a share of stock is calculated based on the current dividend rate and the price of the stock. It is a ratio that indicates how much a company pays out in dividends compared to its stock price, which helps investors understand the potential income return on their investment.
Step-by-step explanation:
The dividend yield for a share of stock is based on the current dividend rate and the price of the stock. When a company pays a dividend, this is a portion of the company's profits distributed to shareholders. The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. If a stock pays a dividend of 75 cents per share and the stock is priced at $50, the dividend yield would be 1.5%.
Investors look at dividend yields to gauge the returns they can expect from an investment in stocks. Firms like Coca-Cola and electric companies often offer consistent dividends, making them attractive for long-term investments. Understanding dividends and their yields is important for individuals looking to invest in the stock market and those seeking a return in the form of predictable income.