Yield.
In plain English
Yield is the annual income from an investment divided by its current price, expressed as a percent. A $100 stock paying $3 in dividends has a 3% dividend yield. A bond paying $40 a year on a $1,000 face value has a 4% yield. Yield differs from total return, which also counts price appreciation or depreciation. The key arithmetic fact: yield rises when price falls and falls when price rises, because the same income divided by a smaller (or larger) number changes the percent.
01Why it matters
A high yield can mean a steady income source, or it can be a warning sign that the price has collapsed and the market doubts the income will continue. When you see a stock with a 12% dividend yield, the question is 'why?' not 'sign me up.'
02The math, step by step
In 2024, several U.S. bank stocks showed dividend yields of 8% to 10% while the S&P 500 averaged about 1.4%. The reason was not generosity: bank stock prices had fallen sharply on concerns about commercial real estate exposure, pushing reported yields up. Some of those high yields stayed; others got cut within a year.
03What this is NOT
Yield is just the income component. Total return = yield + price change. A stock with a 3% dividend that fell 10% had a total return of -7%, despite the positive yield.