In finance, yield refers to the earnings generated and realized on an investment over a particular period of time. It’s expressed as a percentage based on the invested amount, current market value, or face value of the security. Yield represents an investor’s annual return from a particular investment, such as stock dividends or interest from bonds. It’s a key measure used to evaluate the return on investment, particularly for fixed-income securities.
While many investors prefer dividend payments from stocks, it is also important to keep an eye on yields. If yields become too high, it may indicate that either the stock price is going down or the company is paying high dividends.
James Chen, former director of investing & trading content at Investopedia
In Simpler Terms
Think of yield as the amount of money your savings or investments are bringing in. For instance, if you own shares in a company that pays dividends, the yield is like the regular payouts you receive from your investment relative to the price you paid for the shares. It’s like getting a regular harvest from your fruit tree based on how much you initially spent planting and nurturing it.
Yields can vary greatly depending on the type of investment. Government bonds might offer lower yields but are generally safer, while stocks offer higher yields but with more risk. In the context of stocks, yield is calculated as the annual dividend payment divided by the stock’s current price. For bonds, it’s the annual interest payment divided by the bond’s current price. Yield is an important concept for investors as it indicates the income, such as interest or dividends, that an investment generates relative to its cost or market value.
