What is a good dividend yield?

Dividend yield is the annual dividend divided by the share price: a stock at $100 paying $3 per year yields 3%. Because price is the denominator, yield rises when a stock falls — which is exactly why an unusually high yield can signal distress rather than generosity. A 10% yield often means the market expects the dividend to be cut.

Judge sustainability, not just size. The payout ratio — dividends as a percentage of earnings — is the key check: below 60% generally leaves room for growth and bad years (REITs are a structural exception, as they must distribute most income). Look for a multi-year record of maintaining and raising the dividend; "Dividend Aristocrats" have raised payouts for 25+ consecutive years. Reasonable debt levels and stable cash flow matter more than the headline percentage.

Dividend growth frequently beats high initial yield over long horizons. A stock yielding 2% that raises its dividend 10% annually will out-pay a static 5% yielder in roughly a decade, with the growing payout signaling a healthy underlying business. Your yield-on-cost — dividends relative to what you originally paid — compounds quietly in the background.

Reinvestment is where dividends become powerful. Historically, reinvested dividends have accounted for a large share of total stock market returns. DRIP (dividend reinvestment) buys more shares with every payout, and those shares generate their own dividends — compounding on two fronts as both the share count and the per-share dividend grow. Remember taxes: in the US, qualified dividends are taxed at capital-gains rates, while REIT and most foreign dividends are taxed as ordinary income, making tax-advantaged accounts a good home for high yielders.

To see the long-run difference between a high-yield/low-growth stock and a low-yield/high-growth one — and the dramatic effect of turning DRIP on — model both scenarios in a dividend calculator over 10-30 years.