Earnings Yield

The ratio of a company's annual earnings per share to its stock price; the reciprocal of the P/E ratio.

The earnings yield is an estimate of the inflation-adjusted growth you can reasonably expect from a stock investment; in a normal market it should be at least equal to the T-Bill rate, minus the inflation rate, plus a risk premium of about 3 or 4 percent. Very low earnings yields are a warning sign of a bubble.

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