Yield is the dividend of a financial instrument expressed as a percentage of its purchase price. For example, if the price of a stock is $20 and the dividend is $1 then the yield is 5% (1/20=0.05). Price has an inverse relationship to yield, so as prices increase, yield should fall (and vice-versa).
Unlike fixed income instruments such as bonds, however, Dividends may be increased or reduced by the management of a company. As such, while yield is a good indicator of the current income that can be received from holding a stock, it may fluctuate over the longer term.
Contributed by: Ralph Windsor
Unlike fixed income instruments such as bonds, however, Dividends may be increased or reduced by the management of a company. As such, while yield is a good indicator of the current income that can be received from holding a stock, it may fluctuate over the longer term.
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