How to Calculate Initial Yield

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Initial yield is the income you expect when you purchase an investment asset.
Initial yield is the income you expect when you purchase an investment asset. (Image: MarkgrafAve/iStock/Getty Images)

A yield is the amount of income an asset produces compared to the sum of money invested, expressed as an annual percentage of the investment amount. Yields on some investments don’t change. For example, bonds typically pay a fixed amount each year until they mature. With some investments, such as stocks, an initial yield may vary over time. For instance, the dividend on a stock might grow from 3 percent when you purchase the shares to 6 or 8 percent after a few years.

Examine the characteristics of the investment and identify the type of income it produces. For bonds, this is usually a fixed dollar amount called the coupon. When you buy shares of stock, income comes in the form of dividends. The net income for real estate is what’s left over after maintenance and other expenses are paid.

Calculate the amount of income expected for the year. Suppose you purchase stock with a quarterly dividend payment of 50 cents. Multiply $0.50 times 4 and you have an annual dividend of $2. If you purchase 200 shares, this comes to a total of $400 per year.

Compute the total amount of your investment. Suppose you bought those 200 shares of stock at $40 per share. Multiply the price by the number of shares and you have an investment of $8,000.

Divide the annual income by the amount of your investment and multiply the result by 100 to convert to a percentage. If you purchase stock worth $8,000 that pays $400 a year in dividends, this works out to 5 percent. Thus, your initial yield is 5 percent.

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