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Definition: Yield

Yield refers to the amount of cash obtained in return for an investment in a security. Yield applies to stocks, fixed income instruments like bonds, notes, bills etc and annuities. Investors who require a steady stream of cash flow must invest in high yielding stocks. Dividend Yields determine how much dividends a company pays out relative to its share price.

Dividend Yield = Annual Dividends Per Share/Price Per Share

Dividends for preferred shares will usually be mentioned in the prospectus and includes its yield at par value. For example, a 5% preferred share. Dividends on preferred shares have to be paid first before dividends on common stock can be paid.

Bonds have different types of yields:

  • Yield to Maturity

This is the returns the investor will receive if he holds the bond till its maturity date

  • Coupon Yield = Coupon payment/Face Value
  • Current Yield = Coupon Payment/Current Bond Price

Coupon Payment here refers to the periodic interest payment and face value or par value refers to the amount paid to the bondholder on the bond’s maturity date.

Hence, this concludes the definition of Yield along with its overview.

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