What Is Gross Yield?
The gross yield is the yield on an investment before the deduction of taxes and expenses. Gross yield is expressed in percentage terms. It is calculated as the annual return on an investment prior to taxes and expenses, divided by the current price of the investment.
How Gross Yield Works
A stock that pays $3 in annual dividends and is currently trading at $60 has a gross (dividend) yield of 5.0%. If there is a withholding tax of 10% on the dividend payments, the net dividend yield would be 4.5%. In the case of property investments, the difference between gross and net yields can be quite significant, since rental income can be substantially eroded by operating expenses such as maintenance expenditures, insurance, and property taxes.
Gross Yield, Bond Yields, and Mutual Fund Yields
Gross yield is just one of many yield terms and definitions, spanning real estate and other fixed income and mutual fund investments.
Common bond yield terms include "nominal yield," "current yield," and "yield to maturity." The nominal yield is the coupon rate on a bond divided by its par value. It is the interest rate that a bond issuer promises to pay bond purchasers. The nominal rate is fixed and applies for the entire life of the bond. (It is sometimes called the nominal rate, coupon yield or coupon rate.)
The current yield of a bond equals its annual earnings (interest and dividends) divided by its current market price. Current yield represents the return an investor would expect if the owner purchased the bond and held it for one full year.
The yield to maturity (YTM) of a bond is slightly more complex and is the total return anticipated on a bond if the bond is held until it matures. YTM is a long-term bond yield, expressed as an annual rate. It can be thought of as the internal rate of return (IRR) of a bond investment if the investor holds the bond until maturity and receives all payments as scheduled. Yield to maturity is also called the book yield or redemption yield.
Mutual fund yields come in two major forms. Dividend yields are expressed as an annual percentage of a fund’s portfolio income, also based on the net income received after the fund's associated expenses have been paid. The SEC yield is based on the yields reported by particular companies as required by the Securities and Exchange Commission (SEC). This is based on an assumption that all associated securities are held until maturity.