[1] It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant.
[citation needed] Historically, a higher dividend yield has been considered to be desirable among many investors.
Some investors may find a higher dividend yield attractive, for instance as an aid to marketing a fund to retail investors, or maybe because they cannot get their hands on the capital, which may be tied up in a trust arrangement.
In contrast some investors may find a higher dividend yield unattractive, perhaps because it increases their tax bill.
The importance of the dividend yield in determining investment strength is still a debated topic; most recently, Foye and Valentincic (2017) suggested that high dividend yield stocks tend to outperform.
[2] The persistent historic low in the Dow Jones dividend yield during the early 21st century is considered by some investors as indicative that the market is still overvalued.
[citation needed] The dividend yield of the Dow Jones Industrial Average, which is obtained from the annual dividends of all 30 companies in the average divided by their cumulative stock price, has also been considered to be an important indicator of the strength of the U.S. stock market.
Over the following 16 years, the dividend yield declined to just a percentage value of 1.4% during 1998, because stock prices increased faster than dividend payments from earnings, and public company earnings increased more slowly than stock prices.
For example, if a company has announced a dividend increase, even though nothing has been paid, this may be assumed to be the payment for the next year.
The calculation is done by taking the first dividend payment and annualizing it and then divide that number by the current stock price.
Instead, dividends paid to holders of common stock are set by management, usually in consonance with company earnings.
US newspaper and web listings of common stocks apply a somewhat different calculation: They report the latest quarterly dividend multiplied by 4, divided by the current price.