What Is a High-Yield Dividend?
As its name implies, a high-yield dividend is one that pays an above-average yield, which is the ratio of a stock's dividend to its price. What makes the phrase something of a moving target is a simple question -- what constitutes "average"? Certain investors have their own concrete definition, while others might set a rate that's much higher or lower. Institutional investors often fix their own levels.
As there's no hard and fast rule as to what constitutes a high-yield dividend, a good place to start is with the average yield of the stocks on the bellwether S&P 500 index. Let's begin there to explore how to plunge into high-yield dividend investing.
First, we'll take a step back and determine how to properly and accurately calculate dividend yield. Again, it's simply the dividend amount divided by the stock price. We have to be careful, though, because for the purposes of yield the dividend payout is always calculated on an annual basis, and most stocks pay quarterly (on relatively rare occasions, some dispense monthly or semi-annually).
Source Fool.com
