Earnings Yield

Earnings yield is annual earnings per share divided by the current share price, expressed as a percentage. It shows the earnings amount relative to the price paid for one share.

A simple example

Suppose a company earns $2.00 per share over a comparable 12-month period and its stock trades at $20. Its earnings yield is $2.00 ÷ $20 = 10%. The matching price-to-earnings ratio is $20 ÷ $2.00 = 10, and 1 ÷ 10 also equals 10%.

Why this matters to income investors

Earnings yield helps compare a stock’s earnings with its price. When earnings are positive and measured on the same basis, it is the reciprocal of the price-to-earnings ratio. Earnings yield is not a dividend or cash payment to shareholders.

How to use earnings yield in your research

Compare earnings yield with dividend yield to see how the dividend rate relates to earnings, then review dividend coverage separately. Identify the earnings basis, source, and period, such as adjusted, company-specific, or GAAP earnings. Use comparable periods and the same price date for comparisons. If earnings are negative or unsuitable, do not treat the result as a usable positive yield.

This material is general education and information, not individualized investment, tax, or legal advice.