We are independent & ad-supported. We may earn a commission for purchases made through our links.
Smart Capital Mind

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

What is a Capital Gains Yield?

By Deanira Bong
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Capital gains yield (CGY) refers to the profits or losses an investor earns on a financial instrument that appreciates or depreciates in price during the time the investor possesses it. In other words, CGY indicates the rate of change of the price of the financial instrument. Many investors choose to calculate the CGY of an investment tool because the formula usually gives a good indication of how much the price of the tool fluctuates; this helps the investor determine which tools are good investment choices. Capital gains yield is commonly expressed as a percentage.

Calculating CGY

The formula to calculate capital gains yield is: CGY = (P1 - P0) / P0. P0 represents the original price of the financial instrument, while P1 stands for the current price or selling price of the instrument. For example, if an investor buys a share for $10 US Dollars (USD) and later sells it for $15 USD, the capital gains yield would be (15 - 10) / 10 = 5/10 or 50 percent.

There are other ways to express the CGY formula. It can be stated as (ΔP) / P0, where ΔP represents the change in price. A rearrangement of the original formula gives (P1 / P0) - 1.

Capital gains yield is not cumulative, so if the yields for several periods of time are known, it is not possible to find the yield for the entire period just by adding all the yields of the different periods. For example, there is no way to determine the annual capital gains yield just by adding all the monthly yields for the year. Instead, the initial price at the beginning of the year and the price at the end of the year must first be known and plugged into the CGY formula to find the annual yield.

Other Factors Not Included

Capital gains yield does not represent the total return of an investment, nor does it take into account cash flows such as dividends. As a result, a financial instrument that has a negative CGY could still generate profits for the investor. Capital gains yield only equals total return if the financial instrument generates no cash flow.

For example, if an investor originally pays $60 USD for a share and later sells it for $58 USD, his CGY would be negative: (58 - 60) / 60 = -3.33 percent. If he gets a $5 USD dividend during his holding period, though, he would still be able to show an overall profit of $3 USD.

Despite some factors being excluded from the formula, CGY can still be a beneficial formula for investors trying to calculate price fluctuation over a period of time.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
See our Editorial Process Share Feedback

Related Articles

Discussion Comments

By SarahSon — On Sep 26, 2012

Almost every stock I own is a dividend paying stock, so when I am looking at an expected capital gains yield formula, I know it doesn't take into consideration any dividends I have received.

Receiving a quarterly dividend check is a nice way to have some extra income coming in. I am also more of a buy and hold type of investor, so the capital gains yield is something I don't look at all that often.

When I get ready to sell a stock, I will determine what my capital gains yield will be, but feel a lot more comfortable just holding on to the stock and receiving the dividend.

By Mykol — On Sep 25, 2012

I never knew how to calculate capital gains yield, but just look at it every quarter when I get a statement showing how my investments are performing. When I have my taxes done, they also need to know what the capital gains yield on any investments I have sold during the year.

By golf07 — On Sep 24, 2012

One thing I look at when determining when to sell a profitable investment or not is the capital gains yield. I also take into consideration how long I have had the investment.

If this is something I have had for less than year, this would be taxed as a short term capital gain. If it is longer than a year, it would be a long term capital gain, and the taxes would be lower.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.