Understanding the dividend yield of a company is of great value to income seeking investors. This is because the dividend yield acts as a measure of what an investor is earning in the form of dividends from a company.

The dividend yield is calculated by dividing the annual dividend per share by the share price of a company. For example, if a company pays a dividend of £1 and it’s share price is £10, this would provide a rather generous dividend yield of 10%.

Those larger companies that have been established for a long time and operate in established industries tend to be higher dividend payers than say high growth technology companies.

When searching for income stocks, investors commonly look to determine the dividend yield, but it’s important to compare any dividend yield in respect to its sector peers.