Stocks have two ways of paying their investors back, through dividends or share price appreciation. Computing the yield on stock price growth may seem straightforward as you're only looking at the beginning and ending values of the stock. Dividend yield looks at the stock price and the annual dividend. In fact, you can compute the share price of the stock if you have the dividend yield and the actual amount of the dividend.
Review the formula for dividend yield. The dividend yield is Annual Dividends Per Share / Price Per Share.
Rearrange the formula to find the Price Per Share. This equals Dividend Yield divided by the Annual Dividend Amount. Let's walk through a quick example. Let's say you own 1 stock in Company A and B. They both pay a dividend of $1 per share, but have a dividend yield of 5 percent and 2.5 percent, respectively. Compute the difference in stock price.
According to the formula, the stock price is $1 / .05 = $20 and $1 / .025 = $40. The difference in price between the two is $20.
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