Yield is a measure of the income return on an investment, such as the interest or dividends received from holding a particular security. It is usually expressed as an annual percentage based on the investment’s cost, current market value or face value. Common types of yield include dividend yield for stocks and yield to maturity for bonds.
Yield is an important consideration for income-seeking investors. For example, a high dividend yield might indicate an attractive investment for those looking for regular income. However, it’s important to assess the sustainability of such yields, as unusually high yields can sometimes indicate underlying problems with the investment.
While yield is a crucial aspect of investment analysis, it should not be considered in isolation. Investors need to balance yield with other factors such as the growth potential of the investment, the stability of income and the overall risk profile. For bonds, factors like credit risk and duration also play a critical role alongside yield in determining the attractiveness of the investment.
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