Yield (2024)

Income-only return on investment expressed as an annual percentage

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Written byTim Vipond

What is Yield (Definition)?

Yield is defined as an income-only return on investment (it excludes capital gains) calculated by taking dividends, coupons, or net income and dividing them by the value of the investment, expressed as an annual percentage.

Yield tells investors how much income they will earn each year relative to the market value or initial cost of their investment. The average yield of stocks on the S&P 500, for example, typically ranges between 2.0 – 4.0%.

Yield (1)

Percent Yield Formula

The percent yield formula is a way of calculating the annual income-only return on an investment by placing income in the numerator and cost (or market value) in the denominator.

Percentage yield formula:

= Dividends per Share / Stock Price x 100

= Coupon / Bond Price x 100

= Net Rental Income / Real Estate Value x 100 (also called “Cap Rate“)

Dividend Yield (Stocks)

When it comes to stocks, the income stockholders receive at an individual level is in the form of dividends. Dividend frequency varies but is typically quarterly (sometimes monthly, semi-annually, or annually).

Let’s look at an example of the percent yield formula in action for a dividend-paying stock. We can easily calculate it by working through an everyday example.

Example:

Sam is focused on capital growth but also wants to receive some income from his stocks. As a result, he decides to invest in shares of Goldman Sachs (NYSE:GS), which has a current share price of $231.69 and a quarterly dividend of $0.80 per share. What is the current dividend yield?

Answer:

$0.80 x 4 = $3.20 annual dividend

$3.20 / $231.69 = 0.00138

0.00138 x 100 = 0.138%

Learn more in CFI’s Free Corporate Finance Course.

Interest Yield (Bonds)

For bond investors, the income they receive is in the form of coupon payments, which can vary in frequency but are typically semi-annual.

Example:

Sara is planning for retirement and wants to focus on earning some fixed income payments to fund her lifestyle. She plans to purchase some First Data corporate bonds that have a coupon of 5.75% and can be purchased at a price of $105.21. What is the bond’s yield?

Answer:

5.75% x 100 = $5.75 per bond per year

$5.75 / 105.21 = 0.0547

0.0547 x 100 = 5.47%

Learn more in CFI’s Fixed Income & Bonds Course.

Rental Income Yield (Real Estate)

Another common example is in real estate when investors wish to know how much of a percentage return they will earn in rental income they will receive from a property, after taking into account all operating expenses. The is referred to as the Capitalization Rate in real estate.

Example:

Linda is interested in buying an apartment and renting it out to earn some extra income. She can buy a two bedroom apartment unit for $875,000 and it will rent out for $2,700 per month. She will have total monthly costs (taxes, strata fees, etc.) of $975. What is the yield on her real estate investment?

Answer:

$2,700 – $975 = $1,725 net monthly income

$1,725 x 12 = $20,700 net annual income

$20,700 / $875,000 = 0.0237

0.0237 x 100 = 2.37%

Learn more in CFI’s Real Estate Modeling Course.

Additional Resources

Thank you for reading CFI’s guide on Yield. To continue advancing your career, these additional CFI resources will be useful:

Yield (2024)

FAQs

What does "yields" mean? ›

: to produce as return from an expenditure or investment : furnish as profit or interest. a bond that yields 12 percent. (2) : to produce as revenue : bring in.

What does "expected yield" mean? ›

Expected Yield means, with respect to any Customer Loan, the expected aggregate annualized rate of return (calculated inclusive of all interest and fees (other than any Upfront Fees)) of such Customer Loan over the life of such Customer Loan (assuming (x) in the case of a Daily Pay Customer Loan, a 252 or 257-day, as ...

What is the difference between yield and return on bonds? ›

Yield is the amount an investment earns during a time period, usually reflected as a percentage. Return is how much an investment earns or loses over time, reflected as the difference in the holding's dollar value.

What is the yield of an investor? ›

A yield measures the income that your investment earns (dividends and interest) but it does not take into account capital gain, such as an increase in share price. Even though this income is from a specific period, it gets annualised. That is because a yield assumes this income will continue at the same rate.

Does yield mean to give up? ›

Yield, submit, surrender mean to give way or give up to someone or something. To yield is to concede under some degree of pressure, but not necessarily to surrender totally: to yield ground to an enemy.

What is a yield example? ›

Yield is often expressed as a percentage, based on either the investment's market value or purchase price. For example, let's say bond A has a $1,000 face value and pays a semiannual coupon of $10. Over one year, bond A yields $20, or 2%.

Is yield better than return? ›

Why use yield instead of return? A. 'yield' is beneficial when dealing with large datasets or infinite sequences. It optimizes memory usage by producing values one at a time, enhancing efficiency and performance.

What does current yield tell you? ›

Current yield is a financial metric used to measure the annual return on an investment, such as a bond or a stock. It is calculated by dividing the annual interest or dividend payment by the current market price of the security.

What is a bond yield for dummies? ›

Put simply, a bond yield is the return on the capital invested by an investor. Bond yields are different from bond prices—both of which share an inverse relationship. The yield matches the bond's coupon rate when the bond is issued.

What is a good yield? ›

All in all, though, a good yield is anywhere between 5 and 8%, but you should aim for 7 to 8% or beyond for the best yield on property investment. So when you're wondering what is a good rental yield for your property, aim for somewhere between these numbers.

What is a good yield on investments? ›

A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.

What is good dividend yield? ›

Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment.

What do yields mean in cooking? ›

Yield in culinary terms refers to how much you will have of a finished or processed product. Professional recipes should always state a yield; for example, a tomato soup recipe may yield 15 L, and a muffin recipe may yield 24 muffins.

How do yields work in stocks? ›

For stocks, yield is calculated as a security's price increase plus dividends, divided by the purchase price. For bonds, yield can be analyzed as either cost yield or current yield.

What does it mean if yields are high? ›

Rising yields can create capital losses in the short term, but can set the stage for higher future returns. When interest rates are rising, you can purchase new bonds at higher yields. Over time the portfolio earns more income than it would have if interest rates had remained lower.

What does yield mean in amount? ›

Definition: In financial terms, yield is used to describe a certain amount earned on a security, over a particular period of time.

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