How Yield Differs From Income
One represents today, the other tomorrow.
This column addresses a venerable subject: How payouts from investments are measured. Typically, such payouts are thought of as yield: the cash that securities currently generate. That is the logical starting point; if one were to calculate only a single payout measure, yield would be it.
It is not, however, the ending point. A successful purchase may increase its payouts over time, while an exceedingly poor one will default, thereby ceasing to produce any payments. The latter case, everyone appreciates. Fear is a highly effective instructor. But the former receives less attention. Many investors who seek payouts do so simply by selecting the highest-yielding security that meets their minimum credit standards. Growth is never a consideration.
John Rekenthaler has a position in the following securities mentioned above: PGF. Find out about Morningstar’s editorial policies.