What is Yield? Basic knowledge that investors need to understand

On the path to becoming a systematic investor, understanding the system of generating returns from investments is an essential foundation that cannot be overlooked. Getting to know Yield or the rate of return is a crucial first step in planning investments methodically. This article provides detailed knowledge to help new investors make informed and wise investment decisions.

Yield in the Stock Market - The Main Return Channel for Investors

Types of Yield in the stock market can be divided into two main categories:

Dividend Yield (Dividend Payment Rate): Calculated by dividing the dividends paid to shareholders by the current stock price, then multiplying by 100%. For example, if a stock costs 100 baht and pays an annual dividend of 5 baht, the Dividend Yield is (5 ÷ 100) × 100% = 5%.

Earnings Yield (Profit Return Rate): Calculated from net profit per share divided by the current stock price. If a company has a net profit per share of 5 baht and the stock price is 50 baht, Earnings Yield = (5 ÷ 50) × 100% = 10%.

Understanding both types of Yield helps investors evaluate investment efficiency and compare multiple stocks fairly.

What is Yield - Meaning and Basics

Yield or Rate of Return is a number indicating the return an investor will receive from investing in various assets over a specified period. It is usually expressed as a percentage per year.

Yield varies depending on the type of asset the investor is interested in. The basic formula for calculating the Yield of debt instruments such as bonds is:

Yield = ((Current Price – Purchase Price) / Purchase Price) × 100%

Examples of Yield types include:

• Stock Yield: Dividends received from holding stocks
• Bond Yield: Interest received from holding bonds
• Real Estate Yield: Rental income from leasing properties

Comparing Yield across different assets helps investors choose assets aligned with their goals and risk tolerance.

Main Factors Affecting Yield

1. Asset Type

The type of asset significantly influences the expected Yield. Investing in debt securities may offer lower Yield with lower risk, while stocks often provide higher Yield with increased risk. Choosing assets that balance with your needs and risk appetite is crucial.

2. Market Conditions and Environment

Bank interest rates, economic stability, political conditions, and global economic factors all impact the expected Yield. Monitoring news and market conditions is an essential part of assessing Yield.

3. Investment Duration

Longer investment periods often provide opportunities to compound and increase Yield. Long-term investments can help grow returns through compounding effects.

4. Risk Level

High-risk investments typically require higher Yield to compensate for risk. Investors willing to accept more risk usually access higher Yields.

5. Financial Management Policies

Corporate or organizational policies on profit distribution, such as dividend payments, infrastructure investments, or development projects, influence the Yield investors receive.

Different Types of Yield Investors Should Know

Dividend Yield

Dividend Yield is the ratio of dividends received from holding stocks to the current stock price.

Example: Company A pays an annual dividend of 10 baht, and the market price of its stock is 100 baht.

Dividend Yield = (10 ÷ 100) × 100 = 10%.

This means investors will receive a 10% return from dividends annually.

Stock Yield

Stock Yield refers to the rate of return from investing in stocks, calculated from net profit per share divided by the stock price.

Example: Company B has a net profit per share of 5 baht, with a market price of 50 baht.

Earnings Yield = (5 ÷ 50) × 100 = 10%.

Bond Yield

Bond Yield is the return from investing in debt securities, expressed as a percentage per year.

Example: Buying a bond worth 1,000 baht with an interest rate of 5% over 5 years.

Bond Yield = (50 ÷ 1,000) × 100 = 5%.

Mutual Funds Yield

Mutual Funds Yield is the return of a mutual fund, calculated from the total income of the fund divided by its net asset value (NAV), multiplied by 100.

Fund income comes from two sources: dividends from stocks the fund invests in and interest from debt securities.

Example: Fund A has total income of 100 baht and a NAV of 1,000 baht.

Mutual Funds Yield = (100 ÷ 1,000) × 100 = 10%.

Which Assets Offer High Returns

Assets with high returns often come with high risks:

Stocks: Offer high long-term returns but with high risk. Suitable for risk-tolerant investors, such as technology and growth stocks.

Real Estate: Provide high long-term returns with moderate risk. Suitable for investors with substantial capital, e.g., residential and commercial properties.

Mutual Funds: Offer returns based on investment policies with varying risk levels. Suitable for investors seeking diversification without much time, such as bond funds and mixed funds.

Gold: Often viewed as a safe asset, providing moderate returns with low risk. Suitable for diversification.

Difference Between Yield and Return

Yield and Return are similar terms but have different meanings:

Yield refers to the expected rate of return from an investment, not considering price changes.

Return is the actual profit or loss received, including dividends/interest and gains/losses from price changes.

Choosing the Appropriate Yield for Your Situation

The type of Yield offering the highest return depends on personal factors:

Risk Tolerance: High risk-tolerant investors may consider stocks and speculative assets, while those seeking stability may prefer bonds and principal-protected funds.

Investment Duration: Long-term investments (5-10 years) allow for compounding and growth. Short-term investments often require more stable assets.

Investment Objectives: For current income, high Dividend Yield is preferred; for retirement planning, long-term growth is key; for asset accumulation, disciplined savings are essential.

Summary

Yield is a tool that helps investors understand and manage investment returns wisely. Understanding its meaning, calculation methods, and influencing factors enables investors to plan investments aligned with their goals and personal circumstances.

Whether investing in stocks, bonds, real estate, or other assets, understanding Yield allows for fair performance measurement and comparison among options. The key is selecting assets that balance expected returns with acceptable risks. Since all investments carry inherent risks, continuous study and careful planning are essential.