A company is trading at $100/share with a book value of 50 It made a cash dividend 5 last year and stock dividend of 10% ( i.e. 1 bonus share for every 10 shares held) what is the dividend yield on this one? a) 5% ( 5/100) b) 13.63% ( ( 5+ 8.63 = 13.63 assuming the stock falls after dividend to 86.3) c) 10% ( 5+ 5 = 10 , 10% of book value) d) Deleted in line with CFA guidelines
b
not enough info. What is the sequence of events? Are you asking for historic dividend yield or prospective?
if the $5 dividend is per original share, then a) as stock splits do not change individual’s wealth in any significant way. Otherwise, the question needs to be defined more clearly.
last year 5%, this year 0%. Average around 2.5%.
5%. I think stock dividend can not be counted. If a company only gives 10% stock dividend each year, can we say that its dividend yield is 10%?
sick wording - you must work for the CFAI
the current stock price will reflect the dividends paid through out the year. hence b) is incorrect. i am assuming dividend yield is dealing with cashflows to the investor. in this case with no other suitable answer a is the best answer. thats my final answer.
Yeah, either A or B depending on the timeline.
P.S. feels good to be at it again.
ok guys… thanks for comments on wording Let me clarify/ modify ( or confuse the matters a little more) the question a bit… last year paid $ 5. Constant payment ( i.e. coming year also payment $5). Every year, company is also giving stock dividend of 10%. ( Wishful thinking in these times, huh You are in middle of year … just tabulating several stocks on their dividend yield ranking… what % dividend yield you would give to this company?? *** Those who commented on not using stock dividend at all… consider 2 identical companies A & B trading at 100, face/par value 10 Both make dividend of 100% ( of par value) - A in cash and B in stock Stock price adjusts to both A – stock price falls from 100 to 90 – after div pay out ( div yield = 10/100 = 10% or 10/ 90 ?) B- stock price falls from 100 to 90.9 ( i.e. 100/110) after div pay out ( div yield ???) Remember in both cases the shareholder value remains 100 i.e. in A = 90 ( share value) + 10 div received =100 in B = 90.9 (share value ) * 1.1 share = 100 *** Welcome to the “hell” again… Black Swan… 