A core consideration for income investors is an investment's yield, which indicates the value of the payments you'll receive. Yield can be a useful tool in considering whether you'd rather try to generate future income from bonds or stocks, and whether its price is appropriate.
A stock's yield also can help you determine whether a stock is undervalued or overvalued relative to its projected income. The dividend discount model uses dividend yield to calculate what the current value of a stock should be based on its anticipated dividends in the future. If dividends are expected to grow rapidly, the present value of a stock should be higher than if dividends are expected to remain relatively static.
Source: ExpertClick.com
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