# Suppose a stock had an initial price of $88 per share, paid a dividend of$2.10 per share during...

## Question:

Suppose a stock had an initial price of $88 per share, paid a dividend of$2.10 per share during the year, and had an ending share price of \$96.

What was the dividend yield and the capital gains yield?

## Dividend Yield:

Dividend yield reflects the rate of return an investor earns from dividend payments. Since dividends are taxable as ordinary income, the after-tax rate of return is lower than the pretax dividend yield.

Dividend yield is the ratio of dividend payment to current stock price:

• dividend yield = 2.1 / 88
• dividend yield = 2.39%

The capital gains yield is the percentage change in stock price, i.e.,

• capital gains yield = (96 - 88) / 88
• capital gains yield = 9.09%