Glossary
Yield
The income an investment pays, such as interest or dividends, expressed as a percentage of its price or cost, usually per year.
On this page
Yield is the income an investment generates, expressed as a percentage of what it costs. For a bond, that income is interest; for a stock or fund, dividends or distributions. A stock paying $2 a year in dividends and trading at $50 yields 4%. Yield lets you compare the income of very different assets on one scale, but on its own it says nothing about price risk or total return.
The main versions
Several other yields appear in quotes and fund documents:
- Yield to maturity adds the gain or loss to face value at maturity to the coupons, for a bond held to the end.
- Dividend yield for stocks uses the trailing or forward annual dividend.
- 30-day SEC yield, a standardized figure US bond funds must calculate, reflects recent income net of expenses.
- Distribution yield on a fund can include return of capital, which is not income at all.
What to watch for
Price and yield move in opposite directions, so an unusually high yield is often the market signaling risk: a company expected to cut its dividend, or a bond issuer that may default. Comparing yields only makes sense across the same type of measure and the same period, and income is only part of the picture. A 7% yield on an asset that falls 15% is still a loss on a total-return basis.