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Money Smarts
Chapter 9 Money Smarts: By the Numbers
What numbers do investors use to evaluate
stocks? Chapter 9 discusses earnings per share, price-earnings
(PE) ratio, total return, and current yield. Current yield
is the annual dividend divided by the investment’s current
market value.
Corporate dividends may increase or decrease
depending on the corporation’s profitability, available
cash, and dividend-paying policy. A corporation may have a
profitable year but not have sufficient cash on hand to pay
dividends. Instead, cash may be going into the purchase of
new technology or other improvements.
Go to the BusinessWeek Online
Personal
Finance Investing calculators. Under Stock Calculators,
click on “What is my current yield from dividends?”
Input the following values:
| Share price today |
$40.00 |
| Shares owned |
500 |
| Average quarterly dividend |
$312 |
| Your federal tax rate |
15.00% |
| Your state tax rate |
4.00% |
Click on the “get your results”
button and answer the following questions.
- What is your current yield before taxes? What is your
current yield after taxes?
- Click on the INPUTS tab and change the average quarterly
dividend to $200. What is your current yield before taxes?
Is it different from your answer to Question 1? Why or why
not?
- What is your current yield after taxes?
- Are dividend declines a risk you must accept when investing
in stocks? Why do you think a corporation might raise or
lower its dividends?
- Change today’s share price to $30. What effect
did this have on the current yield? Why?
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