A dividend yield can tell an investor a lot about a stock. It can determine an investment's potential relative to the stock market or among a particular group of stocks trading in the same sector. Although dividend income is a staple in the U.S. stock market, no grand average dividend yield is readily available. There is a way, however, to determine the average dividend yield for the companies included in the major stock market averages, or indexes, which are reasonable illustrations of the broader stock market.
A dividend yield illustrates an investment's returns relative to the size of dividend payments and stock price. An increasing dividend yield can mean that a company's dividend payout is rising -- or that the stock price is declining. The higher the dividend yield, the greater the possibility that a stock price is undervalued, or not reflecting its true worth. Some investors use dividend yield to locate investment opportunities in the stock market. Dividends and stock prices change, however, and as a result, dividend yield does not remain the same forever.
The S&P 500 is an index that reflects trading in 500 of the stock market's largest companies, and as a result is often used as a gauge for the broad stock market's performance. In just under six decades leading up to 2013, the average dividend yield was 3.26 percent, according to a 2012 Forbes article. During this time, the dividend yield for stocks was approximately twice the yield for government Treasury bonds. From September 2011 through June 2012, the average S&P 500 dividend yield was 2.38 percent, which was still higher than the average yield on 10-year Treasury bonds.
Dow Jones Industrial Average
The Dow Jones Industrial Average is a market index that is commonly used to illustrate the stock market's dividend yield. The index contains 30 stocks that are intended to be representative of the many industries traded in the stock market. In 2011, five stocks in the Dow increased their dividend payments in a matter of weeks. At the same time, the price for the Dow increased by more than 9 percent. This caused the average dividend yield for the Dow to decline from 3.29 percent in October 2011 to 2.88 percent in the following month, according to a 2011 CNBC article.
While the dividend yield in a particular market index may reflect trading in the broad stock market, the yields can be examined further by the industry in which stocks trade. For instance, between July and September of 2012, the aggregate dividend yield for stocks in the S&P 500 was 2.1 percent compared to a dividend yield of 4.7 percent for telecommunications stocks that traded in the S&P 500 for the same period, according to a 2012 FactSet report. The stocks of utility and power companies were also higher than average, at 4.3 percent in the same three-month period.
Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.