Which of the following best defines the term 'dividend yield'?

The definition of 'dividend yield' is best captured by the concept that it represents the percentage of annual dividends relative to the stock price. This metric is crucial for investors as it provides insight into the cash returns they can expect from their equity investments in the form of dividends, compared to the price they are paying for the stock.

To calculate dividend yield, you take the annual dividend payments made to shareholders and divide that figure by the current stock price. The result is expressed as a percentage, which enables investors to easily assess the attractiveness of a stock based on its dividend payments relative to its market value. A higher dividend yield can indicate that a company is returning more cash to shareholders relative to its stock price, signaling potential financial health and attractiveness as an investment.

In the context of the other options, the first choice refers to earnings per share, which relates to a company's profitability rather than dividends. The third choice involves total equity divided by shares outstanding, which pertains to book value per share, not dividend yield. The last option, the market value of shares, provides information about the stock's price but does not relate specifically to dividends. Thus, focusing on the percentage of annual dividends relative to the stock price directly addresses what dividend yield is meant to measure