Question

A dividend is defined as: a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).

Investors often enjoy receiving dividends as a regular income stream. Investors certainly enjoy the appreciation of their investment if the price of the stock they have purchased increases, but in order to “realize” the gain, they’d have to sell some of their stock. One way to profit from the good performance of a publicly traded company is to simply own the stock and collect the dividends paid by the company (usually every 3 months.)

Annual yield is determined by dividing the total dividends by the original stock purchase price.

To find the current yield to cost, divide the current annual dividend payment by the original stock purchase price.

To find the dividend growth rate, divide the increase in annual dividends paid by the original annual dividends paid.



Answer all of the following:



In July of 2011, AT&T stock was trading at $30 per share and it paid a quarterly dividend of $0.43 per share. What WAS its annual yield?


Today, AT&T stock is STILL trading at $30 per share and it pays a quarterly dividend of $0.52 per share. What is its CURENT annual yield?


What is the current YIELD TO COST?


What is the dividend growth rate over the past 10 years?


Considering all of the preceding information, if you were a conservative investor, was AT&T stock a good investment over the last 10 years? Why or why not?


What other information might you want in order to make a better judgment concerning question #5?

Answer 1

Annual yield in July 2011:

Quarterly dividend = $0.43 per share

Annual dividend = 4 * $0.43 = $1.72 per share

Stock price = $30 per share

Annual yield = ($1.72 / $30) * 100% = 5.73%

Current annual yield:

Quarterly dividend = $0.52 per share

Annual dividend = 4 * $0.52 = $2.08 per share

Stock price = $30 per share

Annual yield = ($2.08 / $30) * 100% = 6.93%

Yield to cost is the return on investment based on the original cost of the stock. Without information on when the stock was purchased, we cannot calculate yield to cost.

In order to calculate the dividend growth rate over the past 10 years, we would need data on the historical dividends paid by AT&T. Without this information, we cannot calculate the dividend growth rate.

Whether AT&T stock was a good investment over the last 10 years would depend on factors such as the stock's performance relative to the market and the investor's personal investment goals and risk tolerance. However, given the increase in annual yield from 5.73% in July 2011 to 6.93% currently, it appears that the stock has provided a consistent and growing dividend yield over time.

Other information that might be helpful in making a judgment concerning question #5 could include AT&T's earnings history, market trends and industry competition, the company's future growth prospects, and the overall economic climate.