Dictionary - Yield

Definition

The income return on an investment to the owner. The return is usually measured annually as interest or dividend payments in relation to the cost of the investment.

Example

If you buy a stock for $100 that pays a dividend of $2, the yield will be 2% ($2/$100). Generally speaking, yield can be calculated as follows: periodic cash payment / cost of investment = yield.

Relevance

The yield of an investment provides an opportunity to compare different types of investments. However, one needs to be aware that there are different types of yields (e.g. current vs. cost yields, etc.) that will often result in different rates. Therefore knowledge about how yields are measured is crucial when it comes to making investment decisions.  

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