What Is a Good Dividend Yield?

The short answer. For most established companies a sustainable dividend yield sits between 2% and 4%. Above roughly 6%, the market is usually signalling doubt about whether the payment will continue, and it is right often enough that a high yield should be treated as a question rather than a reward. The number that matters is not the yield but whether free cash flow covers the payment.

What is a good dividend yield?

Sector matters enormously. Utilities, tobacco, telecoms and REITs pay high yields structurally, because they have limited reinvestment opportunities and are legally or conventionally expected to distribute. A 5% yield from a regulated utility and a 5% yield from a software company are completely different objects.

Why does a falling share price raise the yield?

Because yield is annual dividend divided by price. A company that pays £1 on a £25 share yields 4%. If the price halves to £12.50 and the dividend is unchanged, it yields 8% — and the company has become more troubled, not more generous. This is why yield screens, run naively, are a machine for finding companies about to cut.

How do you tell whether a dividend is safe?

1. Free cash flow cover. Does cash generated after capital spending exceed the dividend? Earnings cover can be flattered by accounting; cash cannot.
2. Payout ratio. Above 80% of earnings leaves no room for a bad year.
3. Debt maturities. A wall of refinancing due next year competes directly with the dividend.
4. History. A company that has raised its dividend for twenty consecutive years has demonstrated something about its board's priorities.

Is a dividend better than a buyback?

Neither is inherently better; they are different distributions with different tax treatment and different signals. A dividend is a commitment — cutting it is a public admission — which makes it disciplined but inflexible. A buyback is discretionary, quietly reducible, and creates value only if the shares are bought below intrinsic value, which management is not conspicuously good at judging.

What this cannot tell you

A yield figure contains no information about whether the payment will continue. Coverage, debt maturities and the board's intentions decide that, and none of them appear in the ratio.

Educational information, not financial advice. Every figure on this page is read from the source filings when the page loads rather than written into the article, so what you are reading is today's data and not a snapshot of the day it was published.