Question

A stock was priced at $150 per share at the end of 1999. The following table shows dividends per share paid during each year and the price of the stock at the end of the year for the following four years:

year divedends paid during year stock price at end of year

2000 $3.00 $125

2001 $3.00 $150

2002 $3.50 $155

2003 $4.00$200

For each year from 2000 to 2003, calculate the dividend yield, the capital-gains yield, and the total return to the stock. Express your calculations in percentage terms

Answer 1

Year	Dividends paid during year	Stock price at end of year
2000	$3.00	$125
2001	$3.00	$150
2002	$3.50	$155
2003	$4.00	$200

Dividend Yield = Annual dividend per share / Stock price per share

Capital-gains yield = (Current price - Original price) / Original price *100

Here Original Price = $150

Total return to the stock = Dividends Yield + Capital Gains yield

For Year 2000:

Dividend Yield = $3.00 / $125

                     = 0.024

                     = 2.4%

Capital-gains Yield = [($125 - $150) / $150]

                            = - [ $25 / $150 ]

                            = - 0.166667

                            = - 16.67%

Total Return to Stock = 2.4% + ( - 16.67%) = -14.27%

For Year 2001:

Dividend Yield = $3.00 / $150

                     = 0.02

                     = 2%

Capital-gains Yield = ($150 - $150) / $150

                            = 0 * $150

                             = 0%

Total Return to the Stock = 2% + 0% = 2%

For Year 2002:

Dividend Yield = $3.50 / $155

                      = 0.02258

                      = 2.26%

Capital-gains Yield = ($155 - $150) / $150

                            = $5 / $150

                            = 0.03333

                             = 3.33%

Total return to stock = 2.26% + 3.33% = 5.59%

For Year 2003:

Dividend Yield = $4.00 / $200

                   = 0.02

                      = 2%

Capital-gains Yield = ($200 - $150) / $150

                            = $50 / $150

                            = 0.33333

                            = 33.33%

Total Return to the Stock = 2% + 33.33% = 35.33%