What is yield?
In property,
Yeild can be broken down into:
“Gross yield” is the term used to describe the rate of return a property generates in the form of rental income as a proportion of its value (sale price).
“Net yield” is the same calculation but with outgoings and overheads, such as land tax, taken into account when calculating the income derived from a property. Net yield is sometimes referred to as the capitalisation rate, or cap rate.
It’s a quick way to get a rough indication of the rate of return a property will generate during the period of ownership but does not take into account any profit or losses caused by a fall or rise in the property’s capital value. It also doesn’t take into account any debt you owe on the property in the form of a loan.
With Equities
Yeild can be broken down into:
“Gross yield” is the term used to describe the rate of return an equity generates in the form of dividends paid as income to the shareholder, as a percentage of its current 90 day average price (share price).
“Net yield” with many Australian equities, the company has the right to pay tax before it pays its dividends. As Australia runs a Imputation tax system, the Tax paid at the company level then entitles the shareholder, who is paid the dividend, an Imputation Credit this credit is then applied to the income tax of the shareholder who effectively receives a tax benefit. The addition of the Tax benefit and the dividend itself.
With Bonds
Yeild can be broken down into:
Bonds are priced differently, rather than the Bond holder issuing bonds with a stated yeild value on the basis of a price, the Bond holder issues bonds with a Coupon rate and asks the Market how much they are prepared to Pay for a re-occuring coupon. On the basis that the market buys the Bond at a price, the Bond holder equates the Yeild to Maturity by dividing the Bond price by the discounted cashflows over the duration of the Bond.