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The most common and useful way to look at dividends is in terms of dividend yield, which is equal to a company's annual dividend divided by its share price. For example, if Philip Morris MO sells for $34.50 per share and pays $1.68 in dividends, its dividend yield is $1.68 divided by $34.50, or about five percent.
Dividend yield works as a kind of valuation measure: The lower the yield, the more investors have to pay for each dollar of dividends. Investors often consider stocks with high dividend yields potentially undervalued investments.
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Who Has High Dividend Yields--And Who Doesn't >>
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