What does a stock's 'yield' mean?

You may have noticed a stock's 'yield' when looking at its financial data, but what exactly does this mean?

A yield is a measure of the income that an investor can expect to receive from a stock, expressed as a percentage of the stock's price. For example, if a stock has a yield of 2%, and its price is £100 per share, an investor can expect to receive £2 in annual income from that stock.

The yield of a stock is determined by the amount of income that the stock generates, divided by its price. For example, if a stock pays out $1 in dividends per year and its price is £100, its yield would be 1%. If the price of the stock increases to £200, its yield would drop to 0.5% because the same amount of income is now being divided by a higher price.

The yield of a stock is an important factor for investors to consider when evaluating the potential return on their investment. In general, stocks with higher yields are considered to be more attractive to income-oriented investors, who are looking to receive regular income from their investments.

However, it's important to note that the yield of a stock is not the only factor that investors should consider when evaluating its potential return. For example, a stock may have a high yield but its price may be expected to decline in the future, which could offset the potential benefits of its high yield. Similarly, a stock with a low yield may have strong growth prospects, which could lead to higher returns for investors even if its yield is relatively low.

In addition to dividends, stocks can also generate income through other means, such as stock buybacks or share repurchases. When a company buys back its own shares, it reduces the number of outstanding shares on the market, which can increase the value of the remaining shares. This can be beneficial for investors because it can lead to higher earnings per share and potentially higher stock prices.

Overall, the yield of a stock is a measure of the income that an investor can expect to receive from the stock, expressed as a percentage of its price. It is an important factor for investors to consider when evaluating the potential return on their investment, but it is not the only factor to consider.

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