Average Dividend Yield is the average a company pays out in dividends relative to its share price over a specified period of time
Average dividend yield is simply a measure of a company's mean dividend yield over a specified period of time. It differs from standard dividend yield in that standard dividend yield refers only to a company's current yield, or rather, the most recent year's dividends divided by share price. As this number may fluctuate year over year as company earnings and share price change, Average Dividend Yield seeks to provide a clearer picture of what a company's dividend yield has been year after year. A company's average dividend yield, then, will be the average of its yearly dividend yield over however many years the average is to be calculated for.
Average dividend yield is most generally used to look for anomalies in company dividend yields. If a company posts a dividend yield vastly divergent to its average dividend yield over, say, ten years, it may be an indicator of anomalous earnings or share price or both.
An investor wants to know the average dividend yield for a company over the past 5 years. The dividends and price-per-share were as follows:
In 2003: Dividend = 50 cents, Share Price = $10.00, Dividend Yield = 5%
In 2004: Dividend = 60 cents, Share Price = $13.00, Dividend Yield = 4.6%
In 2005: Dividend = 70 cents, Share Price = $19.00, Dividend Yield = 3.7%
In 2006: Dividend = 40 cents, Share Price = $9.00, Dividend Yield = 4.4%
In 2007: Dividend = 30 cents, Share Price = $15.00, Dividend Yield = 2%
This means that between the years 2003-2007, the company's average dividend yield is (5% + 4.6% + 3.7% + 4.4% + 2%) / 5 years = 3.94%. In other words, the company paid a dividend which averaged about 3.94% of its given share price between 2003 and 2007.