Yield gap or yield ratio is the ratio of the dividend yield

Dividend yield

The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a percentage...

 of an equity and the yield

Yield (finance)

In finance, the term yield describes the amount in cash that returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return...

of a long-term government bond. Typically equities have a higher yield (as a percentage of the market price of the equity thus reflecting the higher risk of holding an equity.


The purpose of calculating the yield gap is to assess whether the equity is over or under priced as compared to bonds. For a given equity, the following cases may be considered:

• If the yield gap is numerically small, then equity yield is lower than bond yield implying that the equity is overpriced.
• If the yield gap is numerically large, then equity yield is higher than bond yield implying that the equity is cheap.