Annual dividend per share divided by the current share price — the income return on a stock expressed as a percentage, directly comparable to bond yields.
Deeper Explanation
A high dividend yield can signal either genuine value (a quality business trading cheaply) or a value trap (a deteriorating business about to cut its dividend). Graham's test for dividend sustainability: the payout ratio should be below 60% and covered by free cash flow, not just reported earnings. Historically, dividend yield was the primary valuation metric used by practitioners before P/E became dominant — many studies show that high-yield portfolios outperform over long periods, particularly when combined with a payout ratio filter. The current yield on a stock can be compared to the risk-free rate to assess relative attractiveness as an income source.
Continue Learning
Go deeper into the Value school — frameworks, case studies, and decision systems.