Yield turns income into a rate you can compare across investments. For shares it is often the annual dividend divided by the current price. For bonds there are several yield measures depending on whether you use the coupon alone or the full path to maturity. Higher yield can mean higher income, higher risk, or both.
Key takeaways
- Yield is not the same as total return, which also includes price gains or losses.
- A very high yield can be a warning that the price has fallen on fears of a cut or default.
- Always note whether a quoted yield is current, trailing, or yield to maturity.
- Past income rates do not lock in future payments.