To calculate the annual dividend yield of a stock, divide the annual dividend per share by the price per share, explains Investopedia. For instance, if a stock's annual dividend per share is $2 and the price per share is $80, then the stock's calculated dividend yield is 2.5 percent.
Many financial websites, such as Yahoo Finance, list the current price and dividend for individual stocks. Yahoo Finance also calculates and lists the current dividend yield. Investors can use dividend yields to help determine the best stocks to buy, according to Investopedia. If two companies show otherwise similar performance, investors generally buy the stock with the higher dividend yield. Dividends are paid out of a company's profits to its stockholders.
Companies record dividends on a specific date, called the ex-dividend date, explains Minyanville Media. Though dividends may not be paid out until weeks later, investors must own stock in the company by the ex-dividend date to receive that quarter's dividend. Not all companies that pay out high dividends are safe investments. Investors always need to check a company's performance before deciding if it is a worthy investment. As of 2014, the federal government taxes personal dividend income at up to 23.8 percent, reports the Washington Post.