What financial metric measures the return on investment from dividends?

The appropriate financial metric that measures the return on investment from dividends is dividend yield. Dividend yield is calculated by dividing the annual dividends per share by the current share price. This metric provides investors with an indication of how much income they can expect to receive in the form of dividends relative to the price they paid for the investment.

In investment strategies focusing on income generation, particularly for stocks that consistently pay dividends, the dividend yield is essential. A higher dividend yield signifies a potentially more attractive return from dividends, making it a critical indicator for income-focused investors.

Understanding why this is the correct choice involves recognizing the purpose of the other metrics as well. The price-to-earnings ratio gauges the valuation of a company in relation to its earnings, but it does not directly measure returns from dividends. Return on equity assesses a company’s ability to generate profit from its shareholders' equity, focusing on overall profitability rather than specific returns from dividends. Capital gains yield measures the price appreciation of an investment, emphasizing the increase in the value of shares rather than income derived from dividends.

In summary, dividend yield specifically addresses the return from dividends, making it the right choice for measuring returns on investments that generate income through dividends.