What does dividend yield measure?

Dividend yield specifically measures the amount of income generated from a stock in relation to its current market price. It is calculated by taking the annual dividend payment and dividing it by the stock's current market price. This metric is particularly useful for investors seeking income, as it directly shows how much they can expect to earn from dividends relative to the price they pay for the stock. A higher dividend yield may indicate a more attractive investment for income-focused investors, reflecting the company’s commitment to returning value to shareholders.

While the other options mention aspects of returns or distributions, they do not accurately define dividend yield. For example, the total return on investment including capital gains encompasses both income and price appreciation, which is broader than what dividend yield measures. Rental income rate of return relates to real estate rather than stocks, and profit distribution to stakeholders does not explicitly calculate yield; it lacks the specific relationship between dividend payments and market price that dividend yield provides.