Finance: Dividend Yield

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Questions and Answers

What does a high dividend yield often indicate?

A company's potential risks due to a falling stock price (correct)

A company's low creditworthiness

A company's low potential for capital appreciation

A company's focus on growth and reinvestment

What is the primary purpose of using dividend yield in investment decision making?

To compare the income-generating potential of different stocks (correct)

To calculate the market price of a stock

To determine the creditworthiness of a company

To evaluate the growth potential of a company

If a company pays an annual dividend of PHP 2.50 per share, and the current market price of the stock is PHP 50.00, what is the dividend yield?

4.00% (correct)

3.00%

5.00%

2.00%

What is the interpretation of a dividend yield of 7%?

For every PHP 100 invested, the investor can expect to receive PHP 7 in dividends annually Signup and view all the answers

What type of investor may prefer stocks with higher dividend yields?

Income-focused investors Signup and view all the answers

What does a low dividend yield often indicate?

A company's focus on growth and reinvestment rather than paying out dividends Signup and view all the answers

What can be used to compare the income-generating potential of different stocks?

Dividend yield Signup and view all the answers

What is the dividend yield of AC Corporation's stock, which is currently priced at PHP 55 per share and pays an annual dividend of PHP 4.50 per share?

8.18% Signup and view all the answers

What is the main feature of cumulative preferred shares?

They include a special feature ensuring that missed dividend payments are accumulated and must be paid out before any dividends can be distributed to common shareholders. Signup and view all the answers

Which type of preferred share allows shareholders to receive the fixed dividend and then participate in the remaining profits alongside common shareholders without limit?

Fully participating preferred shares Signup and view all the answers

What happens if a company misses a dividend payment to cumulative preferred shareholders?

The company must pay the accumulated dividend before any dividends can be distributed to common shareholders. Signup and view all the answers

What is the main feature of callable preferred shares?

They give the issuing company the right to repurchase the shares at a predetermined price. Signup and view all the answers

Which type of preferred share includes an option for the shareholder to convert their preferred shares to common shares?

Convertible preferred shares Signup and view all the answers

What is the result of a regular dividend payment to preferred shareholders?

The preferred shareholders receive their fixed dividend and there is no accumulation. Signup and view all the answers

What is the main difference between fully participating preferred shares and partially participating preferred shares?

Fully participating preferred shares allow shareholders to participate in the remaining profits alongside common shareholders without limit, while partially participating preferred shares have a cap. Signup and view all the answers

What happens if a company misses multiple dividend payments to cumulative preferred shareholders?

The company must pay the accumulated dividend before any dividends can be distributed to common shareholders. Signup and view all the answers

What is the primary difference between preferred stockholders and common stockholders in terms of dividend payments?

Preferred stockholders receive dividends before common stockholders. Signup and view all the answers

In the event of liquidation, which type of stockholders are paid out last?

Common stockholders Signup and view all the answers

What is the primary characteristic of non-voting shares?

They are often issued to raise capital without diluting control. Signup and view all the answers

What is the primary benefit of holding preferred stock?

Priority in dividend payments Signup and view all the answers

Which type of shares are traded on a public stock exchange?

Listed shares Signup and view all the answers

What is the primary difference between preferred stock and common stock in terms of liquidation?

Preferred stockholders are paid out before common stockholders in the event of liquidation. Signup and view all the answers

Which type of shares do not provide voting rights to their holders?

Non-voting shares Signup and view all the answers

What is the primary benefit of holding common stock?

Potential for capital appreciation Signup and view all the answers

Study Notes

Dividend Yield

Dividend yield is computed by dividing the annual dividend per share by the current market price of the security or the price per share x 100
Interpretation: a dividend yield of 5% means that for every PHP 100 invested in the stock, the investor can expect to receive PHP 5 in dividends annually
Uses of Dividend Yield:
- Income Generation: investors looking for regular income may prefer stocks with higher dividend yields
- Comparative Analysis: dividend yield allows investors to compare the income-generating potential of different stocks
- Investment Decision Making: helps in evaluating whether a stock fits an investor's income needs and risk tolerance

Types of Preferred Shares

Cumulative Preferred Shares:
- provides shareholders with preferential treatment regarding dividend payments and liquidation proceeds
- ensures that missed dividend payments are accumulated and must be paid out before any dividends can be distributed to common shareholders
Fully Participating:
- allows shareholders to receive the fixed dividend and then participate in the remaining profits alongside common shareholders without limit
Partially Participating:
- allows shareholders to receive the fixed dividend and then participate in the remaining profits up to a certain additional amount or cap
Callable Preferred (Redeemable Shares):
- gives the issuing company the right to repurchase the shares at a predetermined price after a certain date
Convertible Preferred:
- includes an option for the shareholder to convert their preferred shares into common shares at a predetermined ratio

Classification of Shares

By Voting Rights:
- Voting Shares: grant the shareholder the right to vote on corporate matters
- Non-Voting Shares: do not provide voting rights, often issued to raise capital without diluting control
By Market:
- Listed Shares: traded on a public stock exchange
- Unlisted Shares: not traded on public exchanges and are typically privately held

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Description

Learn about dividend yield, its calculation, and uses in finance, including income generation and comparative analysis.