Yield

Yield is the annual return you receive from holding a stock, share or unit trust - it is expressed as a percentage of its price.

In the case of shares, the yield is calculated by expressing the dividend as a percentage of the cost of the investment.

To calculate a yield on a share, take the dividend paid (this will be net of the basic rate of tax), add back the tax to get the gross yield and then divide by the share price and multiply by 100. In simple terms, if you buy shares in (say) General Trading Company and the gross dividend is 5 pence and the shares are 100 pence, your yield is 5%.

Yield can be an important consideration when investing. Some companies have a policy of maximising their dividend pay outs, others are more concerned to retain all or most of the profits for re-investment.

In the case of fixed interest stock, such as gilts , the return is a specified rate of interest. But there may also be a capital gain or loss to take into account if the investor holds the stock until maturity when it is redeemed by the issuer at face value. This is why it's important to consider two gilt yield figures, the interest yield and the redemption yield.

See also Guide to bonds

Last Updated: June 2006 © Moneyextra.com

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