Dividend yield shows how much income you earn from a stock in the form of dividends, compared to its price. It is important in stock selection because it helps you know which stocks give regular returns, apart from price growth. A good dividend yield means steady income, which is helpful for long-term and conservative investors.

What is Dividend Yield in Stocks?

Dividend yield is the percentage of a company's stock price that it pays to shareholders as dividends. It is calculated by dividing the annual dividend by the current stock price. For example, if a stock is priced at ₹100 and pays ₹5 in annual dividends, the dividend yield is 5%. This helps investors understand the return they can expect just from dividends.

Why is Dividend Yield Important in Stock Selection?

Dividend yield is important because it helps you choose stocks that offer steady income. Investors who want regular cash flow, like retirees, prefer high dividend yield stocks. It also shows that the company is financially strong and able to share profits regularly. A good yield adds stability to your portfolio, even during market ups and downs.

How to Use Dividend Yield in Investment Decisions?

To use dividend yield, look for companies that give consistent dividends with a stable or growing trend. Avoid stocks with very high yields, as they might be risky or in trouble. A steady and moderate yield from a reliable company is usually a better choice. Combine dividend yield with other factors like company growth and financial health for smarter stock selection.

What is a Good Dividend Yield?

A good dividend yield depends on the industry and market conditions. Generally, a yield between 2% to 6% is considered good for stable companies. Too high a yield could be a warning sign that the stock price has fallen too much or the company may cut dividends in the future. So, always check the company’s track record and payout stability.

Does Dividend Yield Mean a Safe Stock?

Not always. A high dividend yield looks attractive, but it doesn’t always mean safety. Sometimes, companies with falling stock prices show high yields. That could be a risk. Safe dividend-paying stocks are usually those that give steady dividends for many years and have strong financials. Always check other factors like debt, earnings, and cash flow before investing based only on yield.

Should You Pick Stocks Only Based on Dividend Yield?

No, dividend yield should not be the only reason to buy a stock. It is one of the many factors to check. You should also look at the company’s financial health, earnings, management quality, and future growth. A balanced stock with decent yield and strong business fundamentals is better than chasing high yield with weak companies.