Yield
The income generated by an investment expressed as a percentage of its price. Used for bonds, dividends, and savings.
Formula
Current Yield = Annual Income / Current Price × 100
Yield is the income return on an investment as a percentage of its current price or cost. It strips price appreciation out and focuses purely on the cash flow the investment generates.
For bonds, the current yield = annual coupon ÷ current price. Yield to maturity (YTM) accounts for any premium or discount to par and all future cash flows, making it the more complete measure.
For stocks, the dividend yield = annual dividend ÷ share price. A rising yield can mean either the dividend increased (good) or the price fell (potentially a warning sign).
Example
A bond with a face value of $1,000 paying a $40 annual coupon trades at $950. Current yield = $40 / $950 = 4.21%. If it had traded at par ($1,000), the yield would equal the coupon rate of 4%.
Related Terms
Benchmark
A standard index or rate used to evaluate investment performance — the S&P 500 is the most common equity benchmark.
BeginnerBond
A debt instrument in which the issuer borrows money from the buyer and promises to pay periodic interest plus return the principal at maturity.
BeginnerDividend
A cash (or stock) payment a company makes to shareholders from its profits, typically on a quarterly schedule.
BeginnerReturn on Investment (ROI)
Net profit as a percentage of the capital invested. The universal yardstick for comparing investment performance.
Beginner