When you purchase a stock, you can make money on that investment in several different ways. You can make money when the stock price rises, of course, but you can also make a profit by collecting the dividend paid by that stock. Your total return on that P1 stock consists of both the share price increase and the dividend payout, and both of those factors must be included when you do your total return calculation. Calculating the P1 of the stock requires that you look at the total return you receive, including potential capital gains and dividends as well.
Review the purchase confirmation you received when you bought the stock. Note the purchase price of the stock.
Check the stock tables for the expected annual dividend on that stock. You can find this information in financial publications like the Wall Street Journal, Investors Business Daily and Barrons, as well as at many financial websites.
Add the expected dividend payment to the price you paid for the stock. For instance, if you paid $100 for the stock and it has a dividend of $3, the total would be $103.
Research the expected price target for the stock. You can find analyst predictions for future growth of the stock price in many financial publications. Since analysts can differ on the price target for the same stock, it is best to read many different analyst predictions and use an average.
Subtract the original purchase price of the stock from the expected price in a year This is your anticipated capital gain for the stock.
Calculate your expected rate of return on the stock by adding the annual dividend and the anticipated capital gain amount and dividing it by the original purchase price of the stock. If your $100 stock is expected to be $105 in a year and has a $3 dividend, that equates to an 8 percent anticipated rate of return.
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