Historic yield refers to the income generated by an investment over a past period, typically a year, as a percentage of the investment’s value. For stocks, it's calculated as the annual dividends divided by the stock’s price. For bonds, it's the interest payments relative to the bond’s price. Historic yield provides insight into the income-generating ability of an investment.
Historic yield is an important metric for income-focused investors, such as those seeking steady cash flows from dividends or interest payments. It helps in comparing the income efficiency of different investments. A higher historic yield indicates a more attractive income return, assuming other factors like risk and growth potential are equal.
It's crucial for investors to understand that a high historic yield does not always equate to a good investment. Sometimes, a high yield can be the result of a significant drop in the investment’s price, potentially signalling underlying problems. Therefore, the historic yield should be considered alongside other factors, such as the stability of income payments, the financial health of the issuing entity and overall market conditions.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.