A dividend is a portion of earnings that is distributed to shareholders of the company. To calculate the dividend yield, which is the annual percentage return based on an initial investment, take the annual distribution by the company and divide it by the priced paid for the company stock. This is one way to compare the payout of different investments. For instance, if an investor views two companies equally, but one has a dividend yield of two percent and one a dividend yield of three percent, then the investor would choose the stock with the three-percent dividend yield to obtain a greater return on his/her money. The investor would purchase that stock because the dividends paid to the investor as a percentage of the investor’s purchase price are greater than when buying the stock that will return a two-percent dividend yield—as a percentage of the purchase price. Of course, this is only part of the calculation you make when deciding whether or not to buy the stock. There are many more factors to consider.