CISI Professional Practice Exam 2025 – Complete Prep Guide

Question: 1 / 400

What does the dividend yield indicate to investors?

The potential future dividends a company will pay

The total profits earned by the company

The annual dividend payment as a percentage of the stock's current price

The dividend yield is a key financial metric that indicates how much a company pays in dividends each year relative to its stock price, expressed as a percentage. This measurement is important for investors seeking income from their investments, as it shows the return on investment in terms of dividends received. By calculating the annual dividends paid per share and dividing that amount by the current price per share of the stock, investors can assess the yield, helping them compare the income-generating potential of different investments.

Understanding the dividend yield can also assist investors in evaluating the attractiveness of a stock relative to others and making informed decisions based on their investment goals. It is particularly relevant for income-focused investors, such as retirees, who may prioritize cash flow from their investments.

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The relationship between dividends and stock volatility

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