You are correct. It is not a payment. A dividend yield shows the percentage return of dividend payouts relative to the price of the stock. So if you collect $1 per share over the year on a stock for which you paid $20, your yield is 5% (dividend payout/price). Instead of the dividend, an “earnings yield” shows a company’s paper profits as a percentage of the stock price. It’s actually earnings/price (E/P), so it’s the inverse of a price-to-earnings ratio (or P/E). A P/E of 16 is equivalent to an earnings yield of 6.3%.
Both dividend yield and earnings yield are important valuation metrics. A high earnings yield can sometimes signal a bargain, and not every company pays a dividend, but every profitable company has an earnings yield. On the other hand, dividend yield is an actual return – cash in your pocket. (Keep in mind, though, that companies can raise or lower them.) You can’t pocket the earnings a company reports, and a chunk of those earnings also go to capital reinvestment such as new plants or buying new machines.
Hope that helps. Thanks for the question!