DEFINITION of 'CashOnCash Yield'
A basic calculation to estimate the return from an asset that generates income. Cashoncash yield also refers to the total amount of distributions paid annually by an income trust as a percentage of its current price. The cashoncash yield is a measurement technique that can be used to compare different unit trusts.
INVESTOPEDIA EXPLAINS 'CashOnCash Yield'
The cashoncash yield is useful as an initial estimate of the return from an investment, but has a number of limitations. It may overstate yield if part of the distribution consists of a "return of capital," rather than a "return on capital," as is often the case with income trusts. Also, as a pretax measure of return, it does not take taxes into consideration. For example, if an apartment priced at $200,000 generates monthly rental income of $1,000, the cashoncash yield on an annualized basis would be 6%.
In the context of income trusts, assume a trust with a current market price of $20 pays out $2 in annual distributions, consisting of $1.50 in income and 50 cents in return of capital. The cashoncash yield in this case is 10%, but since part of the distribution consists of return of capital, the true yield is 7.5%. The cashoncash yield measure overstates the return in this case.

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