The dividend yield reflects the dividend yielding power of a stock. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing by the stock's price.
For example, a company which pays out $0.25 in cash dividends quarterly over the course of a year has a annual dividend of $1. If its stock price is $20, then by the formula given below, the dividend yield will be 1/20 x 100% = 5%.
The dividend yield tends to be higher for larger, mature companies. This is because smaller, younger companies often need to retain earnings to expand the business and keep growing. In fact, for this reason, many young companies don't even pay dividend at all.
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