8/13/2023 0 Comments Yield define financeReturn provides a glimpse of the investment’s prior performance and helps determine if a particular investment has been profitable over time. Return is a measure of an investment’s total interest, dividends and capital gains, expressed as a financial gain or loss over a specific timeframe. Of course, it’s likely that XYZ’s share price changed over that same time, which is where return can be helpful. Over a year, you would receive $200 in dividend income (50 cents x 4 quarters = $2 x 100 shares). Your initial investment of $5,000 yielded 4% ($200 / $5,000 x 100). Each quarter, XYZ pays a dividend of 50 cents per share. For example, let's say you purchase 100 shares of XYZ for $50 ($5,000 total). Yield is also a commonly used term when discussing dividend stocks. This is known as the current yield because it’s based on the current price of the bond. If you're considering purchasing the same bond A for $900, the $20 coupon payments based on the current $900 price would be a yield of 2.2%. However, most people buy bonds on the secondary market and not directly from the issuer, meaning they pay more or less than face value. This is known as the cost yield because it’s based on the cost or value of the bond. For example, let's say bond A has a $1,000 face value and pays a semiannual coupon of $10. Yield is often expressed as a percentage, based on either the investment’s market value or purchase price. It’s commonly used to refer to interest payments an investor receives on a bond or dividend payments on a stock. Yield refers to how much income an investment generates, separate from the principal. Here's a look at how they’re different and how you can use them to track the performance of your investments. Yield and return are both measurements of an investment’s performance. Knowing the differences between yield and return can help you evaluate an investment’s income potential. Find a financial advisor or wealth specialist.
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