🧠 A Simple Example

Let’s say you buy a bond for $1,000, and it pays you $50 per year in interest.

• Your yield is 5% — because $50 is 5% of $1,000.

If you buy a dividend-paying stock for $100 and it pays $3 per year in dividends:

• Your yield is 3%.

So, yield = income ÷ investment cost

📊 Common Types of Yield

1. Dividend Yield Annual dividend ÷ stock price. Shows how much income a stock pays.
2. Bond Yield Annual interest (coupon) ÷ bond price. Tells you your return from holding the bond.
3. Yield to Maturity (YTM) The total return you’d earn if you hold a bond to maturity, factoring in price and time.
4. Current Yield For bonds, it's annual interest ÷ current market price (not face value).

Each version gives a slightly different view — but they all focus on how much you earn from your investment.

📈 Why Yield Matters

• Income: Yield is a major factor for income-focused investors — like retirees who want regular cash flow.
• Comparison tool: Yield helps compare different assets (e.g., is this stock better than that bond?).
• Clues to risk: A very high yield can be a red flag. It might signal that the company is struggling, and the dividend (or bond interest) may not be sustainable.

⚠️ Yield vs. Return

Don’t confuse yield with total return.

• Yield = Income only (dividends or interest)
• Total return = Income plus gains/losses in the asset's price

A stock might have a 4% yield but lose 10% in value — so your total return is negative.

🧠 The Bottom Line

Yield is how much income your investment pays you — as a percentage of what you paid.
It’s essential for comparing income-producing assets like bonds, dividend stocks, and funds, and it plays a key role in building a portfolio that fits your financial goals.

Whether you’re investing for income, growth, or both — understanding yield helps you put your money to work wisely.