Question

Total Shareholder Return on a stock: please give dividend yield, capital gains yield and total shareholder return for each year. You may do this problem from an annual perspective. Comment on what shareholders expect from investing in common stock.

You bought at the	2016	2017	2018
End of 2015	Dividends $2.00	Dividends $2.00	Dividends $4.00
$200 per share	paid during the year per share	paid during the year per share	paid during the year per share
	Ending stock price: $130	Ending stock price: $135	Ending stock price: $140

Answer 1

Dividend yield formula = Dividend/Opening price * 100
Capital gains yield formula = (Closing price - Opening price)/Opening price * 100
Total return = Dividend + (Closing price - opening price)/Opening price * 100
	Opening price	Dividend recevied	Closing price	Dividend yield	Capital gains yield
2016	200	2	130	1.00%	-35.00%
2017	130	2	135	1.54%	3.85%
2018	135	2	140	1.48%	3.70%
Comments : Shareholders expect capital appreciation and regular cash inflow from investing in stock. Generally shareholder's more expectation is for capital appreciation rather than dividends.