Earnings Yield

Earnings yield is a company's earnings per share divided by its share price, the inverse of the price to earnings ratio. It is the stock market's closest cousin to the cap rate, which divides a property's net operating income by its price.

The comparison is useful but not exact. A company's earnings come after interest and taxes, while a property's NOI comes before financing and income tax. Cap rate is closer to a company's operating income divided by its enterprise value than to its earnings yield.

Investors still compare the two when deciding where to put money. If stocks offer a 5% earnings yield and a rental offers a 5.78% cap rate, the property is not automatically the better deal once you count the time spent managing it and the cost of selling it later.