There are three reasons to look at a stock’s dividend yield.
The first is to see how much money you’ll make by holding it. The higher the yield, the more money you’ll earn.
The second reason is to use it as a guide for how risky the stock is. The higher the yield, the riskier the stock.
And the third reason is to judge whether it’s an income stock or a growth stock. New companies and those with uneven cash flow tend to be growth stocks. Mature companies or those with consistent cash flow tend to be income stocks.
We mention this because of the hoo-ha surrounding the high dividends you can collect if you own Australian bank stocks.