Yield

Yield is a way of measuring how much income an investment produces relative to its price. If a stock costs $50 and pays $2 per year in dividends, its yield is 4%. It gives you a quick way to compare the income potential of different investments.

Types of yield

Dividend yield is the most common. It’s the annual dividend divided by the current share price. If the share price goes up and the dividend stays the same, the yield goes down. If the price drops, the yield goes up.

Distribution yield works the same way but applies to ETFs and mutual funds. It looks at the fund’s recent distributions and expresses them as a percentage of the current price.

Yield to maturity applies to bonds and GICs. It accounts for the interest payments and the difference between the purchase price and the amount you’ll receive when the bond matures.

Why it matters

Yield is useful for comparing income-producing investments, but it doesn’t tell the whole story. A high yield can look attractive, but it might mean the stock’s price has fallen sharply, or the fund is paying out return of capital instead of real earnings.

It’s also worth remembering that yield only measures income. It doesn’t account for price changes. An investment with a 5% yield that drops 10% in value hasn’t actually made you money. Total return, which combines income and price change, gives you the fuller picture.