Sunday, January 12, 2020

Understanding Dividend Percentages

       This post is a continuation of the $50 a month stock challenge I started October 14, 2019.  Click on, "No Commission Stock Trades", on the right side of the page to read from the start.

The annual dividend percentage is a very simple formula = Dividend divided by Stock price. 

     price / dividend

    Example = Buy @ $27.55 / $0.88 = 3.19% dividend yield
                      Buy @ $26.83 / $0.88 = 3.27% dividend yield 
                      Buy @ $29.34 / $0.88 = 2.99% dividend yield

     That % changes as the stock price fluctuates, until you "BUY" the stock. Your purchase price "locks in" that percentage formula. The only way the percentage can change is with an increase or decrease of dividend payout.

     You buy @ $27.55, that side of the formula is locked in and can never change (your money has been spent).

     Example = 1.. $27.55 / $0.88 = 3.19% yield
                       2.. $27.55 / $0.90 = 3.26% yield (dividend increase)
                       3.. $27.55 / $0.44 = 1.59% yield (dividend decrease)
                       4.. $27.55 / $0.00 = 0.00% yield (stops dividend)

     Talking in generalities about stock prices (each stock in any given market is different), but you get the picture.

   1.. no change in dividend, stock price stays about the same (following the market fluctuations)

   2.. with dividend increase... the price the market is willing to pay increases
   (remember companies generally increase dividend payouts because profits have increased and the market likes that).

   3.. dividend decrease... (I showed a 50% decrease because most companies do not decrease dividends until company finances drastically change to the downside). The market does not like this and the stock price will plummet.   

    4.. stops paying dividend... (all bets are off on how far the stock price will fall).

     The market can LOVE a company that does not pay a dividend but HATES a company that pays and then stops. 

Disclaimer, I am not a professional.





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