What is the yield of a stock?

What is the yield of a stock? Sooner you understand the basics of yield, the sooner you will start picking best yielding dividend stock. To learn idea of yield, start with understanding that you need to own a stock that will deposit money into your account at pre-declared time.

Let’s start with simple example of one of my top dividend stock picked on March 12 2017 to dive into What is the yield of a stock.

ACP: Avenue Income Credit Strategies Fund Dividend

What is the yield of a stock
What is the yield of a stock?

This stock/ETF is traded at price of 13.50 dollars per share. If you hold this stock for 1 year it will pay you 1.44 dollars per share. Yield in simple terms is rate of return on your investment. To calculate the yield of stock divide the money deposited in your account with the price you paid for it when you bought it. E.g. 1.44 / 13.50 = 11 Percent. Just to compare this with current interest on your savings bank account on March 12 2017 is 0.25% or not even that much. Most of the money banks are holding into checking accounts so they don’t even have to pay that much. Yield on your checking account is zero, Yield on you savings account is about 0.25% whereas Yield on ACP investment is 11%.

So why nobody invests all their money in ACP and get 11% return. It is difficult to invest money into one stock or ETF. Diversification is key to survival of investor. They do it all the time because this fund could cease to exist if something really goes bad with it. Yield of a stock is not single determination criteria when you invest into dividend stocks.

If you can study chart of ACP price movement over a period of Jan 2016 to Dec 2016, it was a rising trend. Hence the yield on the stock kept of decreasing.

 

Yield of a stock

Purchase Price

Dividend Dollars per year Yield of stock

9

1.44

16%

10

1.44

14%

11

1.44

13%

12 1.44

12%

13

1.44

11%

14 1.44 10%

 

You will can easily see from the above table that there is no real good point to buy this stock. The price will keeping moving up or moving down and truly there is no logical explanation for it. It could go in any direction based on demand for the stock. If you pay more at the time of purchase you will get lower yield. If you are able to buy at lower level your yield will be higher. Irrespective of the fact that this happens, you could buy it at regular intervals to get best results. So you will be able to average on purchase price and not risking too much going in at one point.

To summarize, What is the Yield of a stock is its current dividend/its current price. It is not the price you bought it at. It is current dividend and current price.