Yield - Stock Trader Glossary

Yield is a financial term used to describe the return on an investment, often in the form of a percentage. It's most commonly used to refer to the yield on a bond or the dividend yield on a stock.

In the case of bonds, yield refers to the interest rate earned by an investor who holds the bond until maturity. The yield is determined by dividing the annual interest payment by the current price of the bond.

In the case of stocks, yield typically refers to the dividend yield, which is the annual dividend payment divided by the current stock price. For example, if a stock pays an annual dividend of $2 per share and its current price is $40 per share, the dividend yield would be 5%.

Investors use yield as a way to compare the returns of different investment options. For example, if an investor is deciding between two bonds with different interest rates, they may compare the yields to determine which one will provide a higher return. Similarly, investors may compare the dividend yields of different stocks to decide which ones are more attractive for income generation.

It's important to note that yield is just one factor to consider when making investment decisions. Other factors such as risk, volatility, and overall market conditions should also be taken into account.