Total Return

[difanchen]

Hi guys,
can someone explain the concept of total return. The book goes into it very briefly as saying it generates return based on income as well as asset itself. I am not sure what exactly this means.
Thanks in advance.

 

[tickersu]

difanchen wrote:
Hi guys,
can someone explain the concept of total return. The book goes into it very briefly as saying it generates return based on income as well as asset itself. I am not sure what exactly this means.
Thanks in advance.

Easiest way to conceptualize this is by thinking of a share of stock that payed you a cash dividend.
Share price last year= 100
Dividend received today (income) = 3
Share price today = 105
Dividend yield is 3% (3/100)*100%
capital gain (asset return) is 5% (5/100)*100%
total return is 8% [(3+5)/100] *100%
Hope this helps!

 

[S2000magician]

Total return is price appreciation plus cash flow.
For stocks, it’s price change plus dividends.
For bonds, it’s price change plus coupons.

 

[difanchen]

Thanks guys.

 

[S2000magician]

My pleasure.