Yield

Yield is the income an investment pays out, divided by what you paid for it. A stock paying $2 a year in dividends, bought at $50, has a 4% dividend yield. A bond paying $50 a year in interest, with a face value of $1,000, has a 5% coupon yield.

Yield is different from total return. Total return = yield + price appreciation. A stock might yield 2% in dividends but rise 10% in price for a 12% total return. Another stock might yield 6% but lose 4% in price for a 2% total return. High yield isn't the same as good investment.

Where yield matters most is in retirement income planning — when you need cash flow from your portfolio without selling principal, yield is the dial. It also matters for bonds, where most of the return comes from coupons.

A high yield can also be a warning sign. If a stock's dividend yield suddenly jumps from 3% to 8%, it often means the stock price has crashed — a "yield trap." Always check whether the high yield came from a payout increase or a price decrease before chasing it.