When you hear the word “yield,” you may picture a red, inverted triangle sign in your head and imagine waiting for an open space before merging onto a road. In finance, yields are also often a matter of waiting until the right time to make your move. Playing the stock market is notoriously risky, and you’ve got to have nerves of steel and have quick decision-making skills if you want to come out of it with any sort of profit. But by understanding the concept of financial yields, you’ll better understand how to time your moves in the stock market for the greatest possible financial benefit.
A financial yield, simply stated, is the amount of cash returned to the owner of a security, or a financial instrument representing financial value. Such instruments include stocks, fixed income instruments such as bonds, notes, and bills, and insurance investments, such as annuities. For example, if you invest a certain amount into a company and receive a dividend as a result, that dividend is the yield on your investment for that period. If you subtract your initial investment from the dividend, you will get a net profit amount. The goal of investing is usually to try and make sure that your yields are as high as possible, and at least high enough to offset the initial investment.
Dividend yield, also known as price/dividend ratio, is a way of measuring the success of a stock by dividing its dividend per share by its price per share. This will show the percentage by which the value of the stock has increase, thus demonstrating how successful the stock really is. By tracking the value of the stock and the trends in its price/dividend ratios, you can try to protect whether a stock’s value will rise or fall. And, if it does, how long that rise or fall will last.
It’s important to analyze a stock’s yield so that you can see whether or not it’s worth investing in this company. It’s usually best to track yields over time so that you can learn to recognize patterns. This is the best way to make an informed decision before you choose a stock to invest in. But you should also keep in mind that there’s always an element of risk whenever you invest in a financial instrument. How much risk really is up to you, and, by analyzing the performance of a stock, you can hedge your bets by investing in stocks with proven success.
Written by Ramsay, a dividend trader that focuses on high dividend paying stocks for value investors and traders in the stock market.
Article Source: Invest in High Yield Stocks