Common stock is considered as a variable income security, because earnings from stocks depend on the dividends that the company pays and the potential appreciation of the price of the stock itself. Company stock information (such as dividends, price changes, and so on) is available from several publicly accessible resources.
The following table lists stock price data for four companies held in a mutual fund's portfolio:
|+11.5||29.79||25.00||Marston Tech||1.50||5.3||. . .||4001||28.47||+0.08|
Use the preceding data to answer the following question:
Suppose you have $1,000 to invest and are only interested in receiving the highest dividend income. Assuming that each of the four companies continues to pay the same dividends as in the table, in which company should you invest?
- O Chemla Inc.
- O Vistou Co
- O Habib Corp
- O Marston Tech
This question entails a basic understanding of a common stock investment, which involves taking an ownership position in a company. It also touches on the concept of a cash dividend, which is a distribution of a portion of a company's current year earnings and/or accumulated assets. Essentially, a dividend is a return of wealth to the stockholders (owners) of a company.
Answer and Explanation:
With a sole focus on dividend income, the most attractive company is the one with the highest dividend yield (annual dividend paid/stock price). Selecting the company with the highest dividend yield will ensure I maximize the yield on my $1,000 investment.
Marston Tech, with a dividend yield of 5.3%, is the optimal investment.
Learn more about this topic:
from Corporate Finance: Help & ReviewChapter 2 / Lesson 10