What is yield?
Yield focuses on income rather than price changes. A rental property, a bond and a dividend-paying share can all be compared by their yield.
Common types of yield
- Current yield (bonds) = Annual coupon ÷ Current bond price
- Dividend yield = Annual [dividends](/glossary/dividend) per share ÷ Share price
- Rental yield = Annual rent ÷ Property value (gross) or (Rent − Costs) ÷ Property value (net)
- [Yield to maturity](/glossary/yield-to-maturity): total annualised return on a bond held to maturity
- Annual percentage yield (APY): savings returns including compounding
Example
A bond pays $60 a year and trades at $1,000. Current yield = 6%. If the price falls to $900, the current yield rises to 6.7%. Yields and prices move in opposite directions.
Yield vs total return
Yield covers income only. Total return adds capital gains or losses. A share with a high dividend yield could still lose money if its price falls.
Why it matters for businesses
- Comparing places to keep surplus cash
- Assessing property investments
- Understanding borrowing costs, since bond yields influence loan rates