Dividend Yield

• 1–2%: typical of growth companies reinvesting most of their profit.
• 2–5%: the usual zone of healthy, sustainable dividends.
• 6%+: demands extra analysis. It may be a mature, stable business… or the market pricing in a cut.

The right question is never "how much does it yield?" but "is it sustainable and will it grow?". A 3% that rises every year is worth more over a decade than a frozen or at-risk 8%.

Current yield versus yield on cost

Yield is calculated on today's price; yield on cost, on what you paid. A company bought at €38 that now pays €0.80 yields 2.1% on your cost even if the market sees 0.7%. Current yield helps you decide new purchases; yield on cost measures what dividend growth has done for your position.

The high-yield trap

The income investor's most expensive mistake is sorting the market by yield and buying at the top. Abnormally high yields are usually a symptom: a price crushed by real problems, an unsustainable payout, or a business without growth. Before buying a striking yield, always cross-check the payout ratio, cash flow and dividend growth history.

Common mistakes

• Comparing yields across different sectors as if they were equivalent.
• Calculating with last year's dividend when a cut has already been announced.
• Forgetting withholding taxes: a foreign stock's gross yield is not what reaches your account.