Proper use of 'yield return'

The yield keyword is one of those keywords in C# that continues to mystify me, and I've never been confident that I'm using it correctly.

Of the following two pieces of code, which is the preferred and why?

Version 1: Using yield return

public static IEnumerable GetAllProducts()
{
    using (AdventureWorksEntities db = new AdventureWorksEntities())
    {
        var products = from product in db.Product
                       select product;

        foreach (Product product in products)
        {
            yield return product;
        }
    }
}

Version 2: Return the list

public static IEnumerable GetAllProducts()
{
    using (AdventureWorksEntities db = new AdventureWorksEntities())
    {
        var products = from product in db.Product
                       select product;

        return products.ToList();
    }
}

I tend to use yield return when I calculate the next item in the list (or even the next group of items).

Using your Version 2, you must have the complete list before returning.
By using yield return, you really only need to have the next item before returning.

Among other things, this helps spread the computational cost of complex calculations over a larger time-frame. For example, if the list is hooked up to a GUI and the user never goes to the last page, you never calculate the final items in the list.

Another case where yield return is preferable is if the IEnumerable represents an infinite set. Consider the list of Prime Numbers, or an infinite list of random numbers. You can never return the full IEnumerable at once, so you use yield return to return the list incrementally.

In your particular example, you have the full list of products, so I'd use Version 2.

Stack Overflow Q#410026, score: 873