Overshadowed by capital gains from booming share prices and devalued by unfavorable tax treatment, dividends have taken a back seat to corporate earnings in the minds of many investors. Hundreds of corporations, especially those in fast-growing industries, don't pay dividends at all. You should pay attention to it, but you want to look at other things. A dividend yield is the percentage of a company's stock price that it pays out as dividends over the course of a year, explains investment advisor The Motley Fool on its Web site. This measure gives you the percentage of income return on your investment, adds mutual fund company T. Rowe Price on its Web site.
Yield is calculated by dividing the annual dividend per share by the company's stock price.
By that standard, Luby's December yield of 5.18 percent and Ultramar Diamond Shamrock Corp.'s yield of 4.54 percent were very high. One reason for buying dividend-paying stocks is the assurance of some income, even if the stock price does not rise. However, investors depending on income need to consider whether a company can continue to pay dividends and whether it can increase them over time. In some cases, they have capital expenditure projects that they believe in the long term will provide more value to shareholders. Examples, he said, include traditionally high-dividend industries like electrical utilities and telephone companies that are growing through mergers and new lines of business.