Which formula is used to calculate the dividend yield?

The dividend yield is an important financial metric that indicates how much a company pays out in dividends relative to its stock price. The correct formula to calculate the dividend yield is to take the dividends paid per share and divide it by the market price per share of the stock.

This calculation provides insight into how much return an investor can expect from dividends alone, expressed as a percentage of the stock's current market price. For example, if a company pays $2 in annual dividends per share and its current stock price is $20, the dividend yield would be calculated as ( \frac{2}{20} ), resulting in a yield of 10%. This metric helps investors compare the income generation capability of one stock versus another or against market benchmarks.

Other choices provided do not accurately represent how dividend yield is calculated. Instead, they deal with different financial concepts, highlighting the importance of understanding various metrics in financial analysis.