Question

Computing the Dividend Yield and the Dividend Payout Ratio The income statement, statement of retained earnings, and balance sheet for Jeanette Company are as follows. Jeanette Company Income Statement For the Year Ended December 31, 20X2 Amount Percent Net sales $8,281,989 100.0% Less: Cost of goods sold (5,383,293) 65.0 Gross margin $2,898,696 35.0 Less: Operating expenses (1,323,368) 16.0 Operating income $1,575,328 19.0 Less: Interest expense (50,000) 0.6 Income before taxes $1,525,328 18.4 Less: Income taxes (40%)* (610,131) 7.4 Net income $915,197 11.0 * Includes both state and federal taxes. Jeanette Company Statement of Retained Earnings For the Year Ended December 31, 20X2 Balance, beginning of period $1,979,155 Net income 915,197 Total $2,894,352 Preferred dividends (80,000) Dividends to common stockholders (201,887) Balance, end of period $2,612,465 Jeanette Company Comparative Balance Sheets At December 31, 20X1 and 20X2 20X1 20X2 Assets Current assets: Cash $2,875,000 $2,580,000 Marketable securities 800,000 700,000 Accounts receivable (net) 939,776 690,000 Inventories 490,000 260,000 Other 93,000 74,261 Total current assets $5,197,776 $4,304,261 Property and equipment: Land $1,575,000 $1,067,315 Building and equipment (net) 1,348,800 1,150,000 Total long-term assets $2,923,800 $2,217,315 Total assets $8,121,576 $6,521,576 Liabilities and Stockholders' Equity Current liabilities: Notes payable, short term $1,170,127 $ 543,641 Accounts payable 298,484 101,500 Current maturity of long-term debt 3,000 2,000 Accrued payables 200,000 57,780 Total current liabilities $1,671,611 $ 704,921 Long-term liabilities: Bonds payable, 10% 500,000 500,000 Total liabilities $2,171,611 $1,204,921 Stockholders' equity: Preferred stock, $25 par, 8% $1,000,000 $1,000,000 Common stock, $1.50 par 337,500 337,500 Additional paid-in capital* 2,000,000 2,000,000 Retained earnings 2,612,465 1,979,155 Total stockholders' equity $5,949,965 $5,316,655 Total liabilities and stockholders' equity $8,121,576 $6,521,576 * For common stock only. Also, assume that the market price per common share is $7.90. Required: 1. Compute the dividends per share. Round the answer to four decimal places. $ per share 2. Compute the dividend yield. Use the part 1 final answer in these calculations and round the final answer to two decimal places. % 3. Compute the dividend payout ratio. Round the answer to two decimal places. %

Answer 1

Answer 1.

Average common stock outstanding = Common stock / Par value per share
Average common stock outstanding = $337,500 / $1.50
Average common stock outstanding = 225,000

Dividends per share = Dividends to common stockholders / Average common stock outstanding
Dividends per share = $201,887 / 225,000
Dividends per share = $0.8973

Answer 2.

Dividend yield = Dividends per share / Market price per common share
Dividend yield = $0.90 / $7.90
Dividend yield = 11.39%

Answer 3.

Earnings per share = (Net income - Preferred dividends) / Average common stock outstanding
Earnings per share = ($915,197 - $80,000) / 225,000
Earnings per share = $3.7120

Dividend payout ratio = Dividends per share / Earnings per share
Dividend payout ratio = $0.8973 / $3.7120
Dividend payout ratio = 24.17%