Yield: A crucial dimension in evaluating investment returns

In finance and investment, yield is a fundamental indicator that helps investors assess the performance of their holdings, whether investing in stocks, bonds, or other assets. A deep understanding of Yield will provide a solid basis for making informed investment decisions.

What is Yield: Understanding the Return Rate Indicator

Yield or the yield value refers to the amount of money an asset generates for an investor relative to the original investment amount, expressed as a percentage. Yield does not account for changes in the asset’s price itself but focuses on the income stream generated from holding or leasing the asset.

For example, if an investor buys a stock at 100 baht and receives 5 baht in dividends per year, the yield of this investment is 5%. Whether the stock price rises or falls, the yield remains the same.

Factors Affecting Yield Determination

Yield is not random; it depends on several factors that investors need to understand:

Type of Asset Invested plays a crucial role in determining the rate of return. Higher-risk assets, such as growth stocks, tend to have higher yields to compensate for market volatility, whereas government bonds, which are lower risk, usually offer lower yields.

Economic and Financial Environment is an external factor that greatly influences yield. Central bank interest rates, economic growth, and exchange rate fluctuations all impact the level of returns.

Investment Duration The longer an investor is willing to hold, the higher the expected yield, as there is more time for compounding and growth.

Risk Level that investors are willing to accept forms the basis for asset selection. For example, risk-tolerant investors may invest in cryptocurrencies, while conservative investors prefer debt instruments.

Issuer Policies of the entity issuing the asset also determine yield. Companies that pay high dividends or invest heavily in R&D may influence yield estimates and expectations.

How to Calculate Yield: Formulas and Practical Examples

Calculating yield depends on the type of asset. For debt instruments, the formula is:

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

Knowing this basic formula allows investors to compare different assets systematically and make informed decisions.

Types of Yield Investors Should Know

( Dividend Yield: Return from dividends

Dividend Yield measures the ratio of dividends paid by a company relative to its market price.

Example: Company X pays 8 baht dividends per share, with a market price of 160 baht.
Dividend Yield = (8 / 160) × 100 = 5%

This means that if investing at the current market price, the investor will earn a 5% dividend return annually.

) Earnings Yield: Return from company profits

Earnings Yield measures net profit per share relative to the current stock price, indicating how much profit the company generates as a percentage of the investment price.

Example: Company Y has a net profit of 4 baht per share, with a market price of 80 baht.
Earnings Yield = ###4 / 80( × 100 = 5%

) Bond Yield: Return from bonds

Bond Yield reflects the interest return an investor receives from holding bonds, calculated from the annual interest rate divided by the bond’s value.

Example: An investor buys a bond worth 1,200 baht with an annual interest rate of 6%.
Bond Yield = ###72 / 1,200( × 100 = 6%

) Mutual Funds Yield: Return from mutual funds

Mutual funds generate income from two sources: dividends from held stocks and interest from bonds. The fund’s yield is calculated by dividing total income by the net asset value (NAV).

Example: Fund Z generates total income of 120 baht, with a NAV of 1,500 baht.
Mutual Funds Yield = ###120 / 1,500( × 100 = 8%

Difference Between Yield and Return

Beginners often confuse these two terms. Although both refer to returns, they have different meanings:

Yield is the expected income from holding an asset, excluding price changes, such as annual dividends from stocks.

Return or actual gain includes income from dividends or interest plus capital gains or losses from price changes.

Example: Buying a stock at 100 baht, receiving 5 baht in dividends, and the stock price rising to 110 baht.
Yield is 5% (dividends only), but the return is 15% (5 baht dividends plus 10 baht capital gain).

Stock Market Yield and Analysis

The stock market has various types of yield. Investors seeking income from stocks should understand the differences among these types:

Dividend Yield is calculated by dividing the dividends paid by the current stock price and multiplying by 100%. Comparing dividend yields across companies helps investors select stocks with better dividend payout rates.

Earnings Yield indicates how much profit a company makes relative to its stock price. Investors can use this to assess whether a stock is overvalued or undervalued.

Which Assets Offer the Highest Yield?

There is no single answer, as it depends on investment goals and risk appetite.

Stocks, especially growth stocks, can offer high yields over the long term but come with high volatility and risk. Suitable for long-term investors.

Real estate provides moderate to high returns, especially rental properties that generate steady cash flow. However, it requires significant capital and maintenance costs.

Debt instruments, such as government bonds, tend to have lower yields but are much safer, suitable for conservative investors.

Cryptocurrencies can offer very high returns but also carry very high risks. Suitable for knowledgeable investors willing to accept high volatility.

Mutual funds offer flexible yield options depending on the risk level, ideal for diversification.

Summary: Yield as a Key Tool

Yield is a fundamental metric for evaluating investment performance, enabling investors to compare assets and make informed decisions. A thorough understanding of yield and the factors influencing it will help you develop suitable investment strategies aligned with your financial situation and goals.

Remember, higher yields often come with higher risks. Investors should balance the pursuit of high returns with the preservation of their capital.