GLOSSARY TERM
Dividend Yield
Dividend yield shows how much a company or fund pays in dividends each year compared with its current price. It is usually shown as a percentage.
What does this mean in practice?
Dividend yield helps you understand how much cash income an investment may produce relative to its price. A higher yield means higher dividend payments compared with the current share price. But a high yield is not always better. Sometimes it can also mean that the price has fallen because investors expect problems.
Example
If a share costs €100 and pays €4 in dividends per year, its dividend yield is 4%. The same idea can also be used for dividend-paying ETFs or funds.
Why it matters
Dividend yield can help you compare income-producing investments, but it should not be viewed alone. For a long-term investor, overall return, diversification, costs and the quality of the investment usually matter more than simply choosing the highest yield.
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