Definition:

Trailing Annual Dividend Yield is a financial metric that measures the dividend income an investor can expect to receive from a stock, expressed as a percentage of the stock's current price. It is based on the dividends paid over the past year.

Formula:

Trailing Annual Dividend Yield = (Total Dividends Paid Over the Past Year / Current Stock Price) * 100

How to use the metric:

Investors use the Trailing Annual Dividend Yield to assess the income-generating potential of a stock relative to its price. A higher yield may indicate a more attractive income opportunity, but it should be considered alongside other factors such as the company's financial health and growth prospects.

Limitations:

The metric does not account for future changes in dividend payments or stock price fluctuations. It may also be misleading if a company has recently changed its dividend policy or if the stock price is highly volatile.

Applies to:

This metric works best in industries where companies have a history of stable and predictable dividend payments, such as utilities, consumer staples, and real estate investment trusts (REITs).

Doesn't apply to:

It does not apply well to industries where companies typically reinvest profits rather than pay dividends, such as technology or high-growth sectors, because these companies may have low or no dividend yields.

Summary:

Trailing Annual Dividend Yield is a useful metric for evaluating the income potential of dividend-paying stocks, particularly in stable industries. However, it should be used in conjunction with other financial metrics and analysis to make informed investment decisions.