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Please help, I have in my notes that the dividend yield is D0/SP at beg of year,
just looked at Q45 in BPP P&R Kit and the dividend yield was calculated with Dividend and SP of same year – not SP of prev year?
How would I know when this is the case and when not?- Topics: 1
- Replies: 87
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Hi again Karen,
You are calculating Div. Yield normally in order to compare this gross return/yield with the gross return available on alternative investments.
I’ve had a quick look at Q45 BPP for you….
Div yield Definition is: Do/SP, as BPP have stated.
The correct SP is the current share price. So in the case of analysing a set of accounts you should take the SP as quoted on the last day of the financial year in question. If this is not available then use the nearest SP to the year end that is available in the current year.
The div as you have correctly stated is Do, that is most recent div just paid for the year.
Regards, Kevin Kelly
Kevin, tks for your response, my confusion stems from the TSR which is:-
Dividend & Change in SP/SP at beg of year? or made up of dividend yield plus capital gain, capital gain = change in SP, therefore the div yield was Dividend/SP at beg of year.
I am getting myself very confused now – can you help my understanding? Sorry about this…..Think about the total return equation:
Total return for a year = (Dividends received during the year + change in price)/Price at start of year
If I’m looking at the future expected return for an investment it’ll be based on the current price and the current dividend or if the information is given the next years dividend. And the current price plus some expected future price (perhaps I know that earnings will grow and the company’s PE will move to the sector average). You need to be able to determine what share price is relevant to what the question is asking – learning the equation as presented in the study material is really only the start. Understanding its relevance and how to use it to make decisions in different circumstances is really what’s required at this level.
Thank you so much, that makes sense to me and is really helpful – I am getting to caught up in ratios and formulas and not taking time to step back and think them through so when asked for the dividend yield in a question – used the one from part of the TSR in automatic pilot. – won’t make that mistake again!
Thanks again 🙂Kevin – I have just done June 2010 exam and calculated the dividend yield as D0/P0 as you advised.
However, the answer shows D0/Share price at beg of year.
I am getting more confused with how to interpret when it asks for the div yield to be current share price and when not?
Can you help?P0 should equal the starting price for the year.
The only time you use the market price is if they asked for the CURRENT dividend yield (or when computing expected future returns for an investor).
In Q4 June 2010 the question asked for two different period dividend yields – that for 2008 and 2009. So we use the starting price for each year in the numerator.
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