Yield

What is yield in business?

Companies will issue regularly scheduled payments to their shareholders known as dividends. This dividend will vary based on a variety of factors like the company’s performance, debts, the business’ future needs, and the number of shares the investor owns.

Similarly, purchasers of bonds will make money off of their initial investment over time in the form of interest. This interest rate is determined by the type of bond and its maturity. 

Because all of these factors can vary so widely, it can be easier to calculate your potential gain by determining the stock or bond’s yield. If a stock’s price is $50, for instance, and the annual dividend pays $4, its yield is 8 percent. This percentage can be used to calculate expected dividends for a given investment.

Yield constantly changes as the price of a stock or bond fluctuates, so it’s necessary to look at how the yield changes over time to more accurately predict your expected profits.

FAQs 

Is yield a profit?

Yield is just a percentage reflecting the financial return on an investment. While it can be used to predict profit, it is not guaranteed to be perfectly accurate.

Is yield better than dividends?

Simply looking at dividends or interest payments when making investment decisions can be more cumbersome than looking at yield, which includes a more complete picture of the financial history of the investment.

How far back should I look at a stock’s yield?

While it can sometimes be helpful to look at a stock’s long-term yields, generally it’s a good idea to see how the yield has performed over the past 12 months to get a picture of the stock’s recent performance.