Dividend yield ratio shows the percentage return to the investor on the market value of the preference or ordinary share he owns. Like dividend coverage ratio, this ratio is also calculated separately for each class of shares.
For preference shares:
and for ordinary shares:
Dividend is very often a major part of all that a shareholder gets from the company for his investment in the shares. Hence, dividend yield ratio frequently represents the significant portion of the return going to the shareholder in the form of dividends.