Question

A stock pays an annual dividend of 1. Its market value per share is 25, and it has a P/e ratio of 20. From this information:

Please calculate

1. Dividend Yield

2. Pay out Ratio

Answer 1

(1)-Dividend Yield

Dividend per share = $1.00 per share

Current Market Price per share = $25.00 per share

Dividend Yield = [Dividend per share / Current Market Price per share] x 100

= [$1.00 / $25.00] x 100

= 4.00%

“Dividend Yield = 4.00%”

(2)-Pay-out Ratio

Current Market Price per share = $25.00 per share

Price-Earnings Ratio (P/E Ratio) = 20 Times

Earnings per share (EPS) = Current Market Price per share / Price-Earnings Ratio

= $25.00 per share / 20 Times

= $1.25 per share

Therefore, the Dividend Pay-out Ratio = [Dividend per share / Earnings per share] x 100

= [$1.00 / $1.25] x 100

= 80.00%

Dividend Pay-out Ratio = 80.00%”