Earnings yield is a company’s earnings per share divided by its share price, written as a percentage — the P/E ratio turned upside down (1 ÷ P/E). It tells you how many cents of earnings you get back for each dollar invested, so a stock can be compared to a bond yield.
Earnings yield = earnings per share ÷ share price × 100%. Equivalently, it is 1 ÷ P/E. Example (illustrative): a stock trades at $100 and earned $5.00 per share over the last twelve months. Its P/E is 100 ÷ 5.00 = 20, and its earnings yield is 5.00 ÷ 100 = 5% (exactly 1 ÷ 20). A stock on a P/E of 10 has a 10% earnings yield; a P/E of 50 gives a 2% yield. The lower the P/E, the higher the earnings yield — two views of the same number. The figures are illustrative inputs, not a reading for any real stock.
The point of the flip is comparison. A P/E of 20 is an abstract multiple; a 5% earnings yield is something you can hold next to the yield on a safe government bond — say a 10-year Treasury at 4% (illustrative) — and ask a concrete question: am I being paid enough extra earnings to take on stock risk? Lining the two yields up this way is the idea behind the so-called “Fed model” — a rough check of whether stocks are priced attractively against bonds — and behind the habit of treating a stock as an “equity bond.” When earnings yields are barely above safe bond yields, stocks offer little reward for their extra risk; a wide gap makes equities look more generously priced.
It carries every limitation of the P/E behind it. It uses accounting earnings, which one-time items can distort, and it is only a snapshot — a fast-growing company can justify a low earnings yield today, while a shrinking business with a tempting 12% yield may be a value trap. Unlike a bond coupon, the earnings are mostly retained inside the company, not paid to you, and it says nothing about debt or cash-flow quality. Treat it as one comparison tool, never a standalone buy or sell signal.
They are the same number viewed two ways. P/E is price ÷ earnings per share (a multiple); earnings yield is earnings per share ÷ price, as a percentage (1 ÷ P/E). A P/E of 20 equals a 5% earnings yield.
Because a percentage is easy to compare to a bond yield or savings rate. A 5% earnings yield sits naturally next to a 4% Treasury, letting you ask whether a stock pays enough extra to justify its extra risk — a comparison a bare P/E multiple hides.
No. A very high earnings yield can flag a cheap, growing business — or a shrinking one heading for trouble (a value trap). And unlike a bond coupon, the earnings are mostly retained by the company, not paid to you. Use it as one comparison tool, not a standalone signal.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.