The dividend yield ratio measures the percentage of a stock’s market value returned annually to the stockholders in the form of a dividend. Preferred stockholders pay special attention to this ratio because they invest primarily to receive dividends. Dividend yield is a measure of stock marketability. The formula is dividend per share divided by market price per share. For 2016, dividend per share divided by market price per share gives us dividend yield of 4%.
This means that investors are earning 4% per dollar invested assuming a constant stock price. If the stock price also goes up, then the return is even higher..