What is dividend yield and what does it mean to reinvest dividends?

Dividends are payments made by companies (often quarterly) to their stockholders to share a portion of the profits. They are a way you can receive income from investments without selling.

Some stocks pay dividends and some don’t, and the amount they pay varies. Dividend yield is a commonly used metric for comparing stocks’ dividends.

Dividend yield meaning

Dividend yield is the percentage of a stock’s price that the company pays its shareholders annually in dividends. It’s calculated by dividing the amount of money the company pays per share (the dividend) by the current share price.

Dividend yield examples

Imagine a company’s stock price is $50 per share. If it pays a yearly dividend of $2 per share, the dividend yield would be 4%. Or, if it pays a dividend of 50 cents per share, the dividend yield would be 1%.

View stocks by highest dividend yield in the Plynk app

When you visit the Plynk app’s Discover page, you’ll see a category called “Dividend Stocks.” Tapping on the bubble brings you to a list of stocks sorted by highest dividend yield. This is one of many characteristics for you to consider as you research investment ideas. Plynk Explore lets you browse dividend stocks by risk level, expert rating, and historical performance.

Dividend reinvestment

Dividend reinvestment means that if you own a stock or fund that pays dividends, when you receive your dividend payments you use them to buy more of that same stock or fund.

How does dividend reinvestment work?

Let’s say you own $100 worth of stock in a company that has a dividend yield of 4%. If you earn $1 for your first-quarter dividend payment, that $1 could be reinvested to increase your total amount to $101.

Should I reinvest dividends?

If you’re planning for the future and don’t need the money right away, reinvesting your dividends is one way to help grow your invested amount over time. It also offers the potential for your investments to take advantage of compound growth.

On the other hand, if you need the money now or want to further diversify your portfolio by investing your dividends in something else, dividend reinvestment may not be the right choice for you.

Next steps to consider

Make a deposit or set up recurring deposits to your brokerage account in the Plynk app. Then go to the Discover page to browse stocks you might be interested in that pay dividends. When viewing a specific stock in the Plynk app, in the Key Metrics section of the Performance tab you’ll see its dividend yield (or N/A if the stock doesn’t pay dividends).

Read more: What are dividends?