An Example

• Assume that ABC Inc. has an annual dividend of $4 per share and the stock is currently trading at $40. To calculate the yield, divide the dividend ($4) by the share price ($40). The result is 10. ABC has a dividend yield of 10 percent.
  
  

Like Bond Yields

• Dividend yields for stocks function in exactly the same way as do yields on bonds. That means when the price of the stock goes up, the yield goes down and vice versa. This is an important factor to note because ABC Inc. may look like a great stock with a yield of 10 percent, but, if the yield was only 3 or 4 percent a couple of months ago, that means the stock has fallen substantially and the reasons probably aren't good.
  
  

Levels of Yield

• Most financial experts would say a stock with a yield of 5 percent or more has a high yield. Going above 10 percent would be extremely high. The area of 3 percent is considered average and below that is viewed as low yield territory.