Calculate a stock's dividend yield by dividing the annual dividend per share by the price per share for that stock, explains About.com. If company XYZ pays a yearly dividend of $2 per share while the stock trades at $100 per share, the dividend yield is 2 percent, or 2 divided by 100.
Dividend yield shows you how much cash flow you bring in for every dollar you invest in that particular stock. If you're looking to build a reliable minimum income from your portfolio, stocks that pay dividend yields reliably are a wise investment. If you're choosing between company XYZ and company ABC, and they both cost $100 per share, but ABC only pays out $1.50 per share, then that dividend yield is only 1.5 percent. Company DEF might cost $200 per share, but if the dividends are $10 per share, that's a significantly higher yield at 5 percent, so investors get more for each dollar, as Investopedia explains.
Not all stock investors are looking for dividends. People looking for explosive growth or looking to invest at the bottom right now and watch stocks appreciate are looking for companies that usually don't pay dividends. However, for people looking to add more stability and regular income to their portfolios, high dividend yields are important, as explained by About.com.