In the context of stock valuation, what does "dividend yield" denote?

Dividend yield is an important metric in stock valuation that represents the income generated from a stock investment relative to its current price. It is calculated by dividing the expected cash dividend per share by the current market price per share. This ratio provides investors with insight into how much cash flow they can expect to receive for each dollar invested in the stock, making it a valuable tool for gauging the stock’s income-generating potential compared to its market valuation.

This understanding is crucial for investors who prioritize income generation, such as those seeking to build a portfolio of dividend-paying stocks. It complements other metrics like capital gains, providing a fuller picture of the investment's total return.

In contrast, the other options represent different financial concepts that do not accurately define dividend yield. For example, one option discusses a combination of expected dividends and the growth rate, while another references total return on investment, which includes capital gains, and not just the yield from dividends. Additionally, a term describing the rate of capital gains does not pertain to dividends at all, further illustrating why the correct answer specifically highlights the ratio of cash dividends to stock price.