What is Yield
Definition: In financial terms, yield is used to describe a certain amount earned on a security, over a particular period of time. It refers to the interest or dividend earned on debt or equity, respectively, and is conventionally expressed annually as a percentage based on the current market value or face value of the security.
Description: Yield is a major decision-making tool used by both companies and investors. It is a financial ratio that indicates how much a company pays in dividend/interest to investors, each year, relative to the security price. Yield is a measure of cash flow that an investor is getting on the money invested in a security.
Suppose, a person A invests Rs 100 per share in the securities of XYZ Ltd for an annual return of Rs 10, and B, another person, invests Rs 200 in the securities of ABC Ltd and gets the same return as A, i.e. Rs 10. Here the yield of A and B is 10% & 5%. While both are earning the same amount, B is getting less return as he/she has invested a higher amount than A.
Similarly, gains on stock prices also accrue profits to investors. This is why stocks with less growth potential are more likely to offer higher dividend yield to investors than stocks with high growth potential and, therefore, there is a better chance of earning returns from price appreciation. Yield varies between investment period and return period. For instance, if you buy a stock for Rs 50 and its current price and annual dividend is Rs 53 and Rs 2, respectively, the ¡®cost yield¡¯ will be 4% (Rs 2/Rs 50) and the ¡®current yield¡¯ will be 3.77% (Rs 2/Rs 53).
Description: Yield is a major decision-making tool used by both companies and investors. It is a financial ratio that indicates how much a company pays in dividend/interest to investors, each year, relative to the security price. Yield is a measure of cash flow that an investor is getting on the money invested in a security.
Suppose, a person A invests Rs 100 per share in the securities of XYZ Ltd for an annual return of Rs 10, and B, another person, invests Rs 200 in the securities of ABC Ltd and gets the same return as A, i.e. Rs 10. Here the yield of A and B is 10% & 5%. While both are earning the same amount, B is getting less return as he/she has invested a higher amount than A.
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Similarly, gains on stock prices also accrue profits to investors. This is why stocks with less growth potential are more likely to offer higher dividend yield to investors than stocks with high growth potential and, therefore, there is a better chance of earning returns from price appreciation. Yield varies between investment period and return period. For instance, if you buy a stock for Rs 50 and its current price and annual dividend is Rs 53 and Rs 2, respectively, the ¡®cost yield¡¯ will be 4% (Rs 2/Rs 50) and the ¡®current yield¡¯ will be 3.77% (Rs 2/Rs 53).