What does the term "dividend yield" measure?

Dividend yield is a key financial metric that provides insight into the income generated from an investment in shares of a company. Specifically, it measures the annual dividend payment relative to the current stock price, expressed as a percentage. This allows investors to understand how much return they can expect to earn from dividends alone in relation to the amount paid for the stock.

By focusing on the ratio of dividends to stock price, investors can assess the attractiveness of a stock as an income-generating asset. A higher dividend yield may indicate that the stock is a more appealing choice for those seeking income, while a lower yield may suggest a more growth-oriented strategy where dividends are reinvested rather than distributed to shareholders.

Understanding this concept helps investors compare different investment opportunities and make informed decisions based on their income needs relative to the market price of the stock at the time of investment.