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Capital gains yield refers to a security’s appreciation or depreciation during the time it’s held.

Capital gains yield is an important formula for figuring the change in an investment’s value. It’s calculated by dividing the security’s growth or reduction by the amount originally paid for it.

For example, an investor bought one share of stock in ABC Corporation for $100. Two years later, the stock has climbed to $120. The stock’s capital gains yield is 20%.

The same investor buys one share of stock in XYZ Company for $100. Its value depreciates to $80. This stock’s capital gains yield is negative-20%.

Capital gains yield does not include dividends in its assessment, making a stock’s total return yield important to consider, as well. Dividends can comprise a substantial portion of a stock’s total return. A stock with a negative capital gains yield may still pay the holder a profit, depending on the amount and timing of dividend payments.

If a stock pays no dividend, its capital gains yield is its total return.

A stock’s capital gains yield and dividend yield combine to provide the total return on a stock that does pay dividends. Dividend yield is a stock’s annual dividend divided by its price.

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