Monday, August 22, 2011

INV101 Dividend Yields

Many potential investors actually do not know how to calculate dividend yield. Some people just follow what is given by the analysts in all those research reports. In actual fact, dividend yield should be calculated according to the purchase price of shares that you bought with.

Take SPH for example. In 2010, SPH was trading between $3.43 to $4.07. The dividends given out was $0.27 in total. Hence, the dividend yield should be ranged from 6.63% to 7.87%. Dividend yield should be given as a range instead of a fixed number. At today's closing price of $3.63, the dividend yield is 7.44% Therefore, it is important to buy the shares at the right price so that we can get the highest yield possible. If you have bought the shares at beginning 2009 at $2.30, your dividend yield for 2010 should be calculated as 11.7%.

Let us find out how much returns will we get if we were to buy SPH shares in January 2009 at the price of $2.30. In December 2009, the total dividend for the year 2009 was $0.25 (yield - 10.9%). In December 2010, the total dividend for the year 2010 was $0.27 (yield - 11.7%). In May 2011, the dividend was $0.07. The total dividend earned for SPH shares, until now, is $0.59. That is already 25.7% earned, with respect to what you paid for in 2009. Using the closing price of $3.63 today, our shares would have earned another $1.33, a 57.8% increase in value.

If we were to sell the shares today at $3.63, the total earnings, including dividends, is $1.92. That is an investment returns of 83.5% for two years of investing. The growth for $2.30 is calculated to be 35.5% per annum compounded for 2 years.

If we had invested $4,600 in SPH in January 2009, the current value of the invested capital would have become $8,440 today. Not a bad investment, right? Of course, we are not going to sell such a wonderful company. Now that the market is in panic selling mode, maybe we should consider to save more money to stockpile SPH's shares?

Have fun investing, cheers!

1 comment:

  1. Disclaimer - This post should not be used as a tool to instigate buy or sell. Readers are advised to exercise discretion with investing.