A stock’s dividend yield is generally calculated by dividing its annual dividend per share divided by the stock’s current market price multiplied by 100.

You can use either the actual dividends paid over the past 12 months, or the dividends you might expect to receive over the next 12 months based on the latest quarterly dividend.

For example, if a company typically pays 25 cent per share each quarter and is trading at $20 per share, its dividend yield would be $1 divided by $20 times 100 or 5 percent.

The yield tells you in percentage terms how much income the stock is likely to generate over the next year. It is somewhat like the interest rate on a bond or other fixed income investment.

Dividend yield is one way to judge if a stock is cheap or expensive relative to other stocks and its trading history.

Many investors look for companies that have consistently raised their dividends over a long period of time.

An abnormally high dividend yield usually means the company’s stock price has dropped. If the company is having financial problems, it might not be able to continue paying dividends at the current rate.