Suppose a stock had an initial price of $90 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $76.

Suppose a stock had an initial price of $90 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $76.

Compute the percentage total return, dividend yield, and capital gains yield.

Explanation

Using the equation for total return, we find:

R = ($76 – 90 + 2.40)/$90

R = −.1289, or −12.89%

And the dividend yield and capital gains yield are:

Dividend yield = $2.40/$90

Dividend yield = .0267, or 2.67%

Capital gains yield = ($76 – 90)/$90

Capital gains yield = −.1556, or −15.56%

Here’s a question for you: Can the dividend yield ever be negative? No, that would mean you were paying the company for the privilege of owning the stock. It has happened on bonds.

Thanks