What Is Yield?
Yield is the income return generated by an investment over a period, expressed as a percentage of its cost or current market value. It focuses on the income an asset produces — such as interest or dividends — rather than any change in the asset's price.
What yield is and why it matters
Yield measures the cash income an investment throws off relative to its price, letting investors compare income-producing assets on a common basis. For a bond, it's interest relative to price; for a stock, dividend yield is annual dividends divided by share price; for real estate, it's rental income relative to property value. Yield differs from total return, which also includes capital gains or losses — a bond can have a healthy yield while its market price falls. Because yield moves inversely to price for fixed-income assets (a higher price means a lower yield), it's a key signal in bond and income investing.
A worked example
An investor buys shares of a company at $50 each, and the company pays an annual dividend of $2 per share. The dividend yield = ($2 ÷ $50) × 100 = 4%. If the share price later rises to $80 while the dividend stays at $2, the yield for a new buyer falls to $2 ÷ $80 = 2.5% — the same income now costs more, so the yield drops even though the payout is unchanged.
How firms handle it today
In accounting and advisory contexts, firms calculate yield when analyzing a client's investments or income-producing assets, distinguishing income yield from total return in reporting.
Related terms
FAQ
What's the difference between yield and return?
Yield measures income relative to price; total return also includes capital gains or losses from price changes.
How is dividend yield calculated?
Annual dividends per share divided by the share price, expressed as a percentage.
Why does yield fall when price rises?
For a fixed income stream, a higher price means each dollar invested buys less income, so the percentage yield declines.