Stock Returns: Why Dividend Yield and Earning Yield Are Essential for Your Portfolio

When it comes to choosing stocks for investment, many beginners focus only on the price and historical appreciation. A grave mistake. There are much more revealing indicators about the true quality of an asset. Among them, the dividend yield deserves special attention – not only for its usefulness but for being a reliable compass in long-term decisions.

What Does Dividend Yield Really Mean?

In practice, dividend yield (DY) is a very simple number: it shows how much the company is returning in profits for each real invested in the stock. It works like this: when a company ends the period with positive results, it passes part of the cash to shareholders through the so-called dividends.

But here’s the critical point that many ignore: dividends vary quite a bit. A company can distribute generous amounts in one quarter and cut drastically in the next. Sales fall, margins tighten, internal investments consume cash – there are dozens of external and internal factors that directly impact what you receive.

Dividend yield solves this problem by capturing an average of 12 months of distribution and comparing it with the current stock price. The result? A percentage that reveals whether that stock is truly profitable or if you’re falling into an optical illusion.

The Calculation Is Simpler Than It Seems

The basic formula for DY is straightforward: take the average dividends paid over the last 12 months, divide by the current stock price, and multiply by 100. Done – you have your percentage.

It sounds easy, but there are nuances. Each company distributes dividends with different frequencies. Some pay semiannually, others annually, some even monthly. This may require small adjustments in your calculation if you want a more precise indicator for that specific stock.

Another important detail: extremely high or low values can distort the analysis. If a company made an exceptional distribution in a period, the resulting DY may seem unrealistic. Therefore, studying standard deviations is essential – especially if you seek truly profitable assets in the long run.

Why Does Dividend Yield Matter (and Earning Yield Too)

Dividend yield mainly serves to identify stocks that generate consistent income. But its application goes far beyond that.

Index analysis: in Brazil, B3 built the IDIV – an indicator that specifically tracks companies that most remunerate investors through dividends. It’s a valuable filter ready for use.

Assessment of corporate health: a stock may look phenomenal with an impressive DY while its price drops dramatically. Dividend yield helps separate signal from noise – you identify whether that’s a temporary deviation or a genuinely profitable business.

Portfolio construction: large investors structure their portfolios using DY as a central reference. Not as the only criterion, of course, but as an anchor. By the way, there’s also earning yield – which measures return based on earnings per share divided by the price. While DY focuses on what is effectively distributed, earning yield shows the company’s total value creation potential. Both complement each other.

Where to Find Reliable Dividend Yield Data

Decades ago, discovering a stock’s DY required manually digging through financial reports. Today? The information is everywhere.

Publicly traded companies publish their financial data regularly. Access the company’s website in the investor relations section – everything is documented and up to date there.

Stock exchanges have migrated to digital platforms long ago. NYSE, for example, provides a vast amount of historical data and analysis free of charge.

Quality brokerages don’t just sell stocks – they provide detailed analyses. Many have platforms or entire apps dedicated to this type of information, accessible even to non-clients.

Additionally, indices that use DY as a basis often share extensive reports. Specialized blogs also track the stocks that pay the most dividends, including analyses of their dividend yields.

The Real Factors Behind Variations in Dividend Yield

Understanding what moves DY is crucial. The list is long, but here are the main ones:

Company’s dividend policy: each organization sets its own policy. Some adjust dividends according to performance; others maintain a fixed line. From time to time, the company may choose to reinvest profits into operations instead of distributing – that’s completely legitimate.

Macroeconomic scenario: during crises, well-managed companies contain distributions to strengthen cash flow. In economic booms, distributions tend to be more generous. It’s a direct reflection of the overall health of the economy.

Stock price fluctuations: here’s an aspect many underestimate. An asset can keep dividends stable, but its DY varies wildly if the price rises or falls. An overvalued stock will naturally have a low DY; a devalued one will have a high DY – even with identical dividend policies.

Distribution intervals: companies with different distribution cycles show DYs with large fluctuations when using the 12-month standard. Attention is needed in interpretation.

There are also sectoral factors. Stocks linked to commodities, for example, are directly impacted by price swings. Financials are affected by interest rates. Technology tends to retain earnings for growth rather than distribute.

The Reality of Dividend Yield in the Brazilian Market

Brazil offers a well-structured environment for DY analysis. Legislation requires companies to distribute at least 25% of their profits to shareholders (unless the bylaws specify otherwise). Brokerages produce solid, accessible documentation.

However, there’s an important “but”: Brazil is economically volatile. Expansion and contraction periods alternate frequently, making DY prediction and assessment more complex. Indicators can be misleading if analyzed in isolation.

The case of Americanas is emblematic. Months before its crisis, the stock had one of the best dividend yields in the market. Today? There’s no even a forecast of profit distribution. This perfectly illustrates why DY should never be the sole decision criterion.

Payout: The Indicator That Complements and Validates

Before concluding, it’s impossible to ignore payout – a metric as important as DY itself.

Payout represents the percentage of profit that the company distributes. In Brazil, the legal minimum is 25%. But here’s the catch: early-stage companies or those without prospects of large profits maintain low payouts. Mature companies and market leaders often have generous payouts – sometimes above 100%.

When Renner operated with a payout of 22%, it signaled a cash retention strategy. When Telefônica maintained a payout of 110%, it indicated extreme solidity and confidence in future cash flows. This indicator reveals the company’s maturity stage and its true financial health.

You find payout in the same sources where you look for dividend yield – usually highlighted side by side.

The Complete Picture for Smart Decisions

Evaluating stocks is challenging precisely because dozens of indicators compete for attention. But a few are truly essential. Dividend yield is among them.

Through DY, you build a clear view of an asset’s consistent profitability. Considering a 12-month interval minimizes distortions caused by isolated peaks or drops. When combined with earning yield (which reveals the total value creation potential), you get a much more accurate picture.

The final recommendation is simple: don’t use DY in isolation. Also consider payout, the company’s sector, macroeconomic context, and operational fundamentals. Stay updated with reliable sources. Dividend yield is a powerful tool, but it’s only one piece of the larger investment analysis puzzle.