Distribution Yield
Distribution Yield is the ratio of the cash distributions paid by an investment fund or trust over a specific period to its current market price. This yield is typically expressed as an annualized percentage and is calculated by dividing the total distributions paid over the past 12 months by the current market price. Distribution Yield reflects the cash return to investors from holding the fund's shares, excluding any capital appreciation.
Distribution Yield
Definition
Distribution yield is the ratio of the cash income distributed to investors by an investment fund or trust fund over a certain period to its current market price. This yield is usually expressed as an annual percentage. It is calculated by dividing the total distributions over the past 12 months by the current market price. Distribution yield reflects the cash return rate that investors receive by holding fund shares, excluding capital appreciation.
Origin
The concept of distribution yield originated with the development of investment funds and trust funds. As these financial instruments became popular in the early 20th century, investors needed a metric to measure their cash returns. Thus, distribution yield emerged as an important indicator for evaluating fund performance.
Categories and Characteristics
Distribution yield can be categorized based on different types of funds:
- Equity Funds: Primarily invest in stocks, with a lower distribution yield as most returns come from capital appreciation.
- Bond Funds: Primarily invest in bonds, with a higher distribution yield as most returns come from interest income.
- Balanced Funds: Invest in both stocks and bonds, with a distribution yield between that of equity and bond funds.
Characteristics of distribution yield include:
- Reflects cash return rate, excluding capital appreciation.
- Highly influenced by market price fluctuations.
- Suitable for evaluating short-term fund performance.
Specific Cases
Case 1: A bond fund distributed $2 per share in cash income over the past 12 months, with a current market price of $20. Its distribution yield is 2/20 = 10%.
Case 2: An equity fund distributed $1 per share in cash income over the past 12 months, with a current market price of $50. Its distribution yield is 1/50 = 2%.
Common Questions
Question 1: Does distribution yield include capital appreciation?
Answer: No, distribution yield only reflects cash returns.
Question 2: Can distribution yield reflect the overall performance of a fund?
Answer: No, distribution yield only reflects cash returns and cannot comprehensively evaluate the overall performance of a fund.
