What is dividend yield? How to screen for high dividend yield stocks? A list of dividend payout rankings from 2020-2023!

In recent years, many investors have become increasingly focused on listed companies with high dividend yields. These companies provide stable cash dividends, helping investors generate consistent returns amid market volatility. Especially during periods of poor market performance, investors often shift their focus from seeking high-growth stocks to looking for quality companies that offer stable payouts.

However, for novice investors, choosing stocks based on dividend yield is not always straightforward. This article summarizes the basic concepts of dividend yield, calculation methods, stock selection considerations, and the top high-dividend-yield stocks over the past four years, helping you make more informed decisions in a complex investment environment.

What is Dividend Yield?

Dividend Yield is a key financial indicator used to measure how much a company pays in dividends annually relative to its stock price. Unlike simply looking at dividend amounts, dividend yield considers both the dividend per share and the stock price, providing a more accurate reflection of the actual return an investor can expect from purchasing each share.

Because stock prices vary greatly among different companies, this ratio becomes especially important. It allows investors to compare yields fairly across different stocks.

The dividend yield varies significantly across different sectors and types of companies. Growth-stage companies typically reinvest profits into expanding their business and rarely pay dividends; in contrast, mature and stable companies tend to pay regular dividends and often increase their dividend amounts each year.

Industries such as Real Estate Investment Trusts (REITs), utilities, consumer staples, and energy companies tend to offer higher dividend yields. Conversely, technology and growth-oriented industries generally have lower yields.

How to Calculate Dividend Yield

The calculation formula is simple: Dividend Yield = Annual Dividends ÷ Stock Price × 100%

This ratio indicates what percentage of the stock price is paid out as dividends annually.

For example: If a company’s stock price is $10 and it pays $1 in dividends annually, the dividend yield is 1 ÷ 10 = 10%.

If a company’s dividend yield increases steadily over the years, it usually indicates good management and increasing dividends. However, be cautious—high dividend yields can sometimes result from a sharp decline in stock price, which warrants further analysis to determine if it’s a good investment opportunity.

When calculating dividend yield, also consider the dividend payment frequency. Most US stocks pay quarterly, but some pay monthly, such as Realty Income (O.US), which pays monthly. Therefore, when comparing yields across companies, it’s necessary to standardize to the same period (usually annual).

Here is a real comparison example:

Realty Income pays $0.25 monthly, totaling $3.05 annually; McDonald’s (MCD.US) pays $1.52 quarterly, totaling $6.08 annually. Although McDonald’s pays a higher absolute dividend, after considering stock price, Realty Income’s yield (4.7%) is twice that of McDonald’s (2.3%).

Advantages of Investing in High-Dividend Stocks

Stable Cash Flow Income

High-dividend-yield stocks are popular mainly because they provide relatively stable cash returns. Even if the stock price fluctuates, investors cannot always buy at the lowest and sell at the highest. But dividends are different—they are usually paid quarterly, providing regular cash income. Some investors even rely on dividend income as a significant part of their living expenses.

Indicator of a Company’s Financial Health

Companies with high dividend yields often reflect strong fundamentals. Dividends are paid out of profits; companies with losses or minimal profits cannot sustain dividend payments. Therefore, companies that maintain high yields over the long term tend to have robust profitability, good financial health, and relatively stable stock prices.

The Power of Compound Effect for Excess Returns

Investors can reinvest dividends to buy more shares, creating a compounding effect.

Suppose an investor invests $10,000 in a stock priced at $20 with a 5% yield (hypothetically). The first year’s dividend is $500. After the ex-dividend date, the stock price adjusts to $19, allowing the investor to buy an additional 26 shares. In the second year, holding 526 shares, the investor receives dividends again, and the cycle continues.

Following this pattern, the $10,000 principal could grow to $12,240 after five years (a 22.4% increase), assuming the stock price remains $500 and dividends are reinvested. If the stock price continues to rise, actual returns could be even more impressive.

Pitfalls to Watch Out for When Investing in High-Dividend Stocks

$20 High Dividend Yield Does Not Always Mean a Good Investment

Dividend yield is composed of dividends and stock price, meaning high yield can result from two scenarios: the company pays generous dividends, or the stock price has fallen sharply. When encountering high-yield stocks, analyze what factors are driving this number.

For example, ExxonMobil (XOM.US) had a dividend yield of 6.1% in 2020, but only 3.3% in 2022. The decline was mainly due to a significant increase in stock price, while dividends remained stable and grew slightly (from $3.48 to $3.65 over three years). This indicates good management and that rising stock prices are a positive sign.

$612 Consider Other Financial Indicators

While high dividend yield is attractive, stock selection should not rely solely on this indicator. Investors also need to pay attention to the payout ratio, which is the proportion of net income paid out as dividends.

If the payout ratio keeps rising without earnings growth, it suggests the company is distributing a larger share of profits to shareholders, which could signal underlying issues.

For example, ExxonMobil paid the same dividends in 2020 despite being in a loss-making state that year. Relying only on dividend yield would not reveal this problem; it might appear as a high number. Investors should also review the company’s balance sheet, income statement, dividend growth trajectory, and other factors to assess its long-term investment value.

How to Find High-Dividend-Yield Stocks

The simplest way to screen for high-dividend-yield stocks is to use stock screening tools. Many financial websites offer such features. Investors can follow these steps:

1. Find a stock screener: Access a financial website with screening functions.
2. Set screening criteria: Choose parameters like dividend yield, market capitalization, dividend growth rate, etc.
3. Sort by dividend yield: Arrange results from highest to lowest yield.
4. Review the results: Stocks with yields above 4% are generally considered high-yield stocks.

After screening, it’s recommended to further analyze the fundamentals of the selected companies to confirm their financial health and dividend sustainability.

Top High-Dividend-Yield Stocks from 2020-2023

Below is a compilation of stocks with dividend yields consistently above 4% over the past four years, for investor reference:

2023 Dividend Yield Rankings (above 4%)

2022 Dividend Yield Rankings (above 4%)

2021 Dividend Yield Rankings (above 4%)

2020 Dividend Yield Rankings (above 4%)

What is Cash Dividend Yield?

Cash dividend yield is a concrete expression of dividend yield, referring to the proportion of dividends paid in cash relative to the stock price. It reflects the actual cash return an investor receives per share annually.

Unlike capital gains, which require buying and selling stocks to realize profit, cash dividends are usually more stable. This means that although the dividend yield may fluctuate with stock price, the amount of cash dividends received per share each year tends to remain consistent or increase annually. Due to this stability, cash dividend yield is an important reference for conservative and income-focused investors.

Investment Tip: When selecting high-dividend-yield stocks, consider the company’s fundamentals, dividend sustainability, industry outlook, and other factors. Do not rely solely on a single indicator. Regularly monitor the company’s financial reports and adjust your portfolio accordingly.