Preferred stock XYZ Corporation issued at par for $50 per share. If stockholders are promised an 8% annual dividend, what was this talks dividend yielded at the time of issue if the stock market price has risen to 60 per share, what is the new dividend yield?
Dividend yield of a stock is the dividend payment from the stock as a fraction of the price of the stock. Dividend yield is part of a stock's total return, with the other component being capital gains yield.
Answer and Explanation:
We can use the following formula to compute the dividend yield
- dividend yield = dividend per share / price per share
Assuming a 100 par value, then the dividend per share for the preferred stock is 100 * 8% = 8. At the initial price of 50, the dividend yield = 8 / 50 = 16%.
At the current price of $60 per share, the new dividend yield = 8 / 60 = 13.33%.
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from Corporate Finance: Help & ReviewChapter 2 / Lesson 10