What does "dividend yield" represent for an investment?

Dividend yield is a crucial metric for investors who are interested in income-generating investments, particularly stocks that pay dividends. This measure reflects the annual dividend income an investor can expect to receive relative to the stock's current price, expressed as a percentage. It allows investors to evaluate the return on their investment in terms of cash flow from dividends, regardless of any changes in the stock price.

For instance, if a company pays an annual dividend of $2 per share and the current stock price is $40, the dividend yield would be calculated as $2 divided by $40, resulting in a yield of 5%. This is useful for investors who are looking for income, as a higher dividend yield can indicate a more attractive investment for generating consistent income.

In contrast, other options discuss unrelated financial concepts. For example, the total earnings from the sale of an investment relate to capital gains, while the percentage of profit gained from capital appreciation pertains to increases in stock value rather than income from dividends. The ratio of a company's net income to its revenue describes profit margins, which measure profitability rather than return on stock investment. Thus, the definition of dividend yield as the annual dividend income expressed as a percentage of the stock's current price is the most relevant and accurate description