What is the dividend yield on Stock A that sells at $35/share, when Company A pays a quarterly dividend of $0.25 per share?
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\begin{array}{c}
\text { Dividend Yield }=[?] % \
\text { Dividend Yield }=\frac{\text { Annual Dividend }}{\text { Share Price }}
\end{array}
[/tex]
Answer (2)
Calculate the annual dividend: Annual Dividend = 4 × $0.25 = $1.00 .
Calculate the dividend yield: Dividend Yield = $35 $1.00 = 0.02857142857 .
Convert the dividend yield to a percentage: \text{Dividend Yield (%)}= 0.02857142857 \times 100 = 2.857142857 .
The dividend yield on Stock A is approximately 2.86 % .
Explanation
Understanding the Problem We are given that Stock A sells at $35 per share and Company A pays a quarterly dividend of $0.25 per share. We need to find the dividend yield on Stock A. The formula for dividend yield is: Dividend Yield = Share Price Annual Dividend
Calculating the Annual Dividend First, we need to calculate the annual dividend. Since the company pays a quarterly dividend of $0.25 per share, the annual dividend is 4 times the quarterly dividend: Annual Dividend = 4 × Quarterly Dividend = 4 × $0.25 = $1.00
Calculating the Dividend Yield Now, we can calculate the dividend yield by dividing the annual dividend by the share price: Dividend Yield = Share Price Annual Dividend = $35 $1.00 = 0.02857142857
Converting to Percentage and Rounding To express the dividend yield as a percentage, we multiply by 100: \text{Dividend Yield (%)}= 0.02857142857 \times 100 = 2.857142857 Rounding to two decimal places, the dividend yield is approximately 2.86%.
Examples
Dividend yield is a key metric for investors to understand the return on investment from dividends alone. For example, if you are comparing two similar stocks, the one with a higher dividend yield provides a better return in terms of dividend income. This is particularly useful for investors seeking regular income from their investments, such as retirees. Knowing how to calculate dividend yield helps in making informed decisions about where to invest your money to maximize your returns.
The dividend yield on Stock A is approximately 2.86%. This is calculated by taking the annual dividend of $1.00 and dividing it by the share price of $35. The calculation shows how much return an investor can expect from dividends alone.
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