The dividend yield is a ratio that shows the percentage of a company's annual dividend compared to its current share price.
Dividend Yield = Annual Dividend/Share Price
Let's say that Company A pay's a $3 annual dividend to its shareholders and their current share price is at $40.
$3/$40 = 7.5% dividend yield.
The dividend yield can help investors understand potentially how much they could earn from dividends for each share that they own.