A yield is a return generated from an investment over a particular period, usually in the form of interest or dividend payments. Yields are typically expressed in percentage.
Yield is commonly mentioned across a variety of products including:
- Bond yield
- Dividend yield
- Stock yield
Changes in yields can tell investors many things. A higher yield could be an indication of a lower risk and bigger income but that should be taken into context. The same scenario could mean a declining security price leading to a higher yield.
At the same time, a company paying higher dividends may be performing well and in peak conditions but this could also mean overpaying and potentially putting their financials at risk if the company is not very profitable.
Whatever the case is, yield is an important measure that should be looked at and followed across different periods.
Key takeaways
- Yield is the earnings measure of a specific investment
- Higher yields are seen as an indication of lower risk and higher income but not necessarily a positive factor which is the case for a higher dividend yield when a stock price drops
- There are different types of yields including yield-to-maturity, yield-to-worst, and yield-to-call in the case of callable bonds.