Question

You bought a stock one year ago for ​$51.81 per share and sold it today for ​$44.41 per share. It paid a ​$1.66 per share dividend today.

a. What was your realized​ return?

b. How much of the return came from dividend yield and how much came from capital​ gain?

Answer 1

(a) Realized Return from a stock incorporates two components:

1. Capital appreciation,i.e, increase in the price of the stock over the holding period (1 year in this case)

2. Dividend income earned for holding the stock during the period

Realized return= ((Ending price - Beginning price) + Dividend)/ Beginning price

= ((44.41-51.81)+1.66)/ 51.81= -11.08% (approx) loss %

(b) Bifurcating the overall realised loss of 11.08% among dividend yield and capital gain:

dividend yield= Dividend income/ Beginning price = 1.66/51.81= 3.2% profit

capital gain= (Ending price - Beginning price)/Beginning price=  (44.41-51.81)/51.81= -14.28% loss

net return from holding the stock over 1 year= 3.2- 14.28= 11.08% loss