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Earnings yield

The earnings yield is a firm's earnings per share for the most recent 12 months divided by the share price - effectively the opposite of the p/e ratio.

The earnings yield is a firm's earnings per share for the most recent 12 months divided by the share price - effectively the opposite of the p/e ratio. The result is expressed as a percentage and represents the percentage return or yield an investor would receive if all the firm's earnings were to be paid out in dividends.

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Looking at the earnings yield rather than the dividend yield as a measure of returns tends to be more popular during periods when dividend payouts are low. The idea is that retained earnings, once re-invested, generate additional earnings, increasing the likelihood and size of future dividends. Hence even undistributed earnings are considered to provide a return, or yield.

See Tim Bennett's video tutorial: Beginner's guide to investing: earnings per share.

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