The dividend yield on a company stock is the company's annual dividend payments divided by its market capitalisation, or the dividend per share divided by the price per share. It's often expressed as a percentage.
Dividend yield (%) = (Gross dividend per share x 100) / Share price
Historically, a higher dividend yield has been considered to be desirable among investors. A high dividend yield is considered to be evidence that a stock is underpriced, whereas a low dividend yield is considered evidence that the stock is overpriced.
The term fell out of favor somewhat during the 1990s because of an increasing emphasis on price appreciation over dividends as the main form of return on investments.
The importance of the dividend yield in determining investment strength is still a debated topic. The persistent historic low in the Dow Jones dividend yield during the early 21st century is considered by some bearish investors as indicative that the market is still overvalued, while others talk of a "new paradigm" of prosperity that renders traditional yield analysis obsolete.