Yield

DEFINITION of Yield

Yield is the income earned from an investment, most often in the form of interest or dividend payments. It is one of the ways in which investments can earn a trader money.

WHAT IT IS IN ESSENCE

Yield is expressed as a yearly percentage of either the value of the original investment or of its current market value.

It is the amount in cash that is generated by an investment.

So, it is typically expressed on an annual basis as a percentage of the investment’s cost or current market value.

Yield is applied to a number of stated rates of return on stocks, fixed income instruments, and other investment type insurance products.

The two assets that are most commonly connected with yields are shares and bonds. Share yields are usually shown as a percentage of the current share price of a company.

Bond yields can be given as either a percentage of the bond price when it is issued, a percentage of the current price of the bond, or an estimate of what the bond’s yield will be if it is held to maturity.

HOW TO USE

Return and yield are not the same things. Although both focus on how much money an investor has made or can make. But we have to calculate them differently.

Return looks at a certain length of time in the past and includes all gains, including interest or dividends, capital gain.

Yield only looks at income. Only the dividend or interest that can earn and ignores capital gain.

Yield is one part of the total return of holding a security. A high one gives owners a chance to recover their investment faster by reducing the risk. 

The yields of various investments do not explain the reasons for the gains and losses. But they may hide declines in the underlying value of the assets or the effects of inflation. Using it is a convenient way of comparing the returns on various financial investments.