What is the dividend yield on Stock A that sells at $20/share, when Company A pays a quarterly dividend of $0.15 per share?
Dividend Yield = [?] %
Dividend Yield = Annual Dividend / Share Price
Answer (1)
Calculate the annual dividend: $0.15 × 4 = $0.60 .
Calculate the dividend yield: $20 $0.60 = 0.03 .
Convert the dividend yield to a percentage: 0.03 × 100 = 3% .
The dividend yield on Stock A is 3% .
Explanation
Understanding the Problem We are given that Stock A sells for $20 per share and Company A pays a quarterly dividend of $0.15 per share. We need to find the dividend yield on Stock A. The formula for dividend yield is given as: 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 $0.15 per share, the annual dividend is: Annual Dividend = Quarterly Dividend × 4 = $0.15 × 4 = $0.60 .
Calculating the Dividend Yield Next, we calculate the dividend yield by dividing the annual dividend by the share price: Dividend Yield = Share Price Annual Dividend = $20 $0.60 = 0.03 .
Converting to Percentage Finally, we convert the dividend yield to a percentage by multiplying by 100: \text{Dividend Yield (%)}= 0.03 \times 100 = 3\% .
Examples
Understanding dividend yield is crucial for investors. For instance, if you're comparing two similar stocks, the one with a higher dividend yield provides a better return on investment through dividends alone. Imagine you're deciding between investing in two companies: Company X with a dividend yield of 2% and Company Y with a dividend yield of 4%. For every $1000 invested, Company Y would give you $40 in dividends annually, while Company X would only give you $20 . This difference can significantly impact your investment returns over time.
