What does a dividend yield measure?

A dividend yield measures the proportion of a company’s earnings that is paid out as dividends relative to its stock price. This metric is expressed as a percentage and is calculated by dividing the annual dividend per share by the stock’s current market price. It provides investors with an indication of the income generated by a stock investment compared to its price, highlighting the effectiveness of the company in returning profits to shareholders.

In contrast, the total return on a stock investment includes the appreciation of the stock price and any dividends received, but it does not focus specifically on the ratio of dividends to share price. The value increase over time reflects capital gains from price appreciation, not the income aspect provided by dividends. The expense ratios would pertain to mutual funds or exchange-traded funds and do not relate to dividend yields. Thus, the focus on the aspect of dividends paid versus the stock's price confirms that the correct answer relates directly to the measure of dividend yield.