The yield on a share is the ratio, expressed as a percentage, between the dividend paid and the market price of the share concerned. We can therefore say that the yield on a share corresponds to the annual income that a security provides, at a given time, to its holder if we assume that the dividend used in the calculation is retained and maintained. The yield of a stock is therefore a criterion often studied to compare securities between them. However, it is important to note that the yield is not the only data to be compared with the data of another security to obtain an accurate comparison.
Stock returns: How to calculate them?
Among the most important stock market notions to know, we find the yield of a stock in the stock market. It concerns the shares with dividends. But in reality, there are various kinds of return that you can calculate or that the charts and stock exchange sites calculate for you and that we are going to present you here with the gross return, the net return, the paid return and the return on cost price.
Your capital is at risk. Performance is not a guide to future performance and is not constant over time.
How to know the gross yield and the dividend of a share :
The gross return is in reality the type of return most frequently evoked when one speaks about the return of a stock exchange security. That it is in the specialized press, on the sites of stock exchange information or at the brokers, it is this notion which is indeed evoked.
This yield is the ratio between the amount of the gross dividend paid by the listed company divided by its share price. But be careful! The gross yield does not take into account the taxation of the shareholder.
The gross yield rate fluctuates according to the company's share price at the time of its calculation. When you see a gross yield, ask yourself when and what price was considered for its calculation.
Note also that the gross yield is determined from the known dividend amount. However, we rarely know the amount of this dividend in advance because only past dividends are public. There are of course anticipations of dividends but we cannot thus speak about return of a share because too many parameters remain unknown at the time of its calculation. Fortunately, some stock exchange sites among the most serious indicate you reliable gross returns but of course based on past dividends.
The calculation of the gross return has the advantage of allowing the comparison of shares between them but the disadvantage of not taking into account taxation and exchange rates. The gross yield is therefore often used to compare stocks in order to evaluate the difference in risk estimated by the market.
How to know the net return or paid return of a stock :
Let's move on to the net return, which is closer to the real return than the gross return. Remember that the gross yield does not take into account the additional costs, including social security contributions and tax charges, which are applied to the dividend.
Many speculators therefore choose to use the real or net yield in order to compare stocks. Here it is necessary to take into account the taxation of gross dividends.
The notion of paid yield corresponds here to the amount paid into the shareholder's account divided by the share price. Thus and within the framework of a PEA, it is the equivalent of the gross yield. If the shares are held for more than 5 years and thanks to the tax breaks offered by this investment product, only the social security deductions are to be deducted from these dividends when the capital is paid out.
If you use a securities account, the calculation is different because the yield paid will take into account the tax deductions at source. The broker deducts the withholding tax, the social security contributions and the interim income tax when it is concerned before the dividend is paid.
The calculation of the net yield of a share is therefore based on the dividend from which taxes and other levies are removed.
How to know the return on unit cost of a share :
Regarding the return on unit cost of a share, it is also called "return on PRU". It is possible that you meet this term at certain brokers or on sites of stock exchange information. It can also be indicated in English under the acronym YOC for Yield on Cost.
This type of yield corresponds to the ratio between the amount of the gross annual dividend and the purchase price of the share, which is different from the stock market price.
The calculation of this return does not take into account the current price of the share, but only the price at which you bought it. This yield differs from the classic gross yield, which is based on the current share price. It is also possible here to deduct taxes and duties in order to obtain a return on net unit cost.
How to know the return on a stock portfolio :
As we have just seen, there are different methods for calculating the return on a stock. But you can also calculate the return on your stock portfolio in the same way, i.e. the return on all your stocks.
However, there is an important subtlety. Indeed, in the case of a stock market portfolio, the calculation of the return on unit cost price will be done according to the shares in the portfolio at the time of the calculation, i.e. according to the initial amount invested.
The difference between stock market returns and performance :
Some investors still confuse the yield and performance of a stock. However, these two concepts are very different from each other and do not express the same thing at all.
Thus, a stock with a high return may show low performance and conversely, a stock that performs well may have a low return.
The notion of performance does not refer to the dividend paid by the listed company to its shareholders but to the increase in the share price on the stock market. It is therefore only a question here of evaluating the capacity of a share to move its share price upwards over time.
The performance of a stock can be expressed over different time periods. It is thus possible to consult the performance of a stock over a year, a session, a week, a few hours or even a few years, depending on the type of analysis you wish to perform. Because it is above all in the context of technical analysis that the performance of a share is studied.
The indicator to follow when investing in the stock market to determine if the share on which one has invested has been profitable can therefore be its yield or its performance, or both, depending on the interest of each of these indicators according to the strategy adopted.
Investors who use a PEA or a securities account to invest generally aim for a long-term strategy and thus seek to favour high-yielding shares with the aim of receiving attractive dividends for several years.
As for investors who prefer to invest in the price of shares without buying them and who do not therefore own these securities and do not receive dividends, they will concentrate their interest on evaluating the performance of the securities over time. Indeed, the speculator in the stock market will above all try to take a position to buy a share which has a potential of important rise or to sell a share which has a potential of important fall.
It is important here to differentiate between these two concepts because a company can see its share price on the stock market gain many points without the dividend paid to shareholders following this trend. Indeed, the dividend and therefore the yield of a share depends essentially on the financial results of the listed company and not on the demand for shares. There are even some very strong performing stocks that do not yet pay a dividend to their shareholders.
Frequently Asked Questions
What is the difference between the yield and profitability of a stock?
The return on a share is primarily a function of the share price at the time of its calculation and corresponds to a financial value. Profitability, on the other hand, is an accounting value that is calculated in relation to a company's equity. However, the financial profitability of a listed company is one of the criteria analysed by investors. There are other financial data that allow to know the profitability, the performance or more generally the solvency and the chances of growth of a company listed on the stock market and that you will discover with the financial analysis.
Where and how to know the return on a share?
It is possible to consult directly the yield of a share on the stock market from many websites specialised in finance or from the website of your bank or broker. However, it is the gross yield that is generally communicated and this is based on past dividends, as future dividends are not yet known. Also and to know the net yield or the real yield of your share in the Stock Exchange, you must deduct from the dividends received the taxes such as the social deductions or income taxes.
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