Term:YIELD

(1) The term used by newspapers on their price page for the dividend yield of a company. The dividend yield is the dividends per share (DPS) expressed as a percentage of the current share price. As a private investor you should be looking for high-quality blue chip shares which are on dividend yields of around 5% or more, because they may be under-priced.

(2)The yield on a bond is the effective interest rate on that bond at the current price. So treasury bills in the US and our own government bonds are bought and sold in a market. They are basically I.O.U.’s where the government has borrowed money with a specific fixed interest rate and repayment date. When current interest rates go up, then the interest rate on existing bonds becomes less attractive and their price falls to bring their effective interest rate into line with the interest rate that can be had on current bonds – and vice versa. When there is a high demand for bonds, their prices naturally rise – which makes the effective yield fall.

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