1. What Is Dividend Yield?
Dividend yield is the annual dividend a stock pays expressed as a percentage of its share price. It tells you the cash income you earn for every dollar invested.
A stock paying $3 per year at a price of $75 yields 4%. If the price falls to $60, the yield rises to 5% — even though the dividend hasn't changed. Yield moves inversely with price.
2. What Is the Payout Ratio?
The payout ratio is the share of earnings a company pays out as dividends. It reveals whether the dividend is comfortably covered or stretched thin.
A company earning $5 per share and paying $2 has a 40% payout ratio — keeping 60% to reinvest. A ratio near or above 100% means it's paying out everything it earns, or more.
3. What Are Healthy Levels?
- •Payout under 60% is generally sustainable, leaving room to reinvest and raise dividends.
- •60%–80% is common for mature, stable companies like utilities.
- •Above 90% is a warning sign — little cushion if earnings dip.
- •Above 100% means the company is paying more than it earns, often by borrowing or draining cash.
Sector note: REITs and utilities naturally run high payout ratios by design. Judge payout ratios against industry norms, not a single universal threshold.
4. Spotting a Dividend Trap
A dividend trap is a stock whose sky-high yield lures investors right before the dividend is cut. Because yield rises as price falls, a soaring yield often signals a falling stock, not a bargain.
Unusually high yield
A yield far above peers (say 9% when the sector pays 3%) is a red flag, not a gift. The market may be pricing in a cut.
Payout ratio over 100%
If dividends exceed earnings, the payout is living on borrowed time.
Weak free cash flow
Dividends are paid in cash, not accounting profit. Check free cash flow covers the payout.
5. Reading Both Together
Yield and payout ratio work as a pair. Yield tells you how much income you'd earn; the payout ratio tells you how safe that income is.
The sweet spot is a moderate yield (3–5%) backed by a comfortable payout ratio (under 60%) and strong cash flow — the profile of a dividend a company can maintain and grow for years.
6. Using These Metrics on WIT
WIT stock pages show dividend yield and the data to assess payout. To evaluate income stocks:
- Check the yield against sector peers on the dashboard.
- Estimate the payout ratio from dividends and earnings shown on the page.
- Confirm coverage with our dividend investing guide before buying for income.