The following information is available for Meyer Company:
Dividends per share of common stock | $1.80 |
Market price per share of common stock | $30.00 |
Which of the following statements is correct?
a. The dividend yield is 16.7%, which is of interest to bondholders.
b. The dividend yield is 6.0%, which is of special interest to investors seeking to earn revenue on their investments.
c. The dividend yield is 6.0%, which is of interest to investors seeking an increase in market price of their stocks.
d. The dividend yield is 16.7%, which is an important measure of solvency.
Option (b) is correct.
Dividend yield = Dividend per share / Market price per share
= 1.8 / 30
= 0.06 or 6%.
Dividend yield is of special interest to investors seeking to earn revenue on their investments.Dividend yield tells us how much return the investor will receive on his investment at today's stock price. It is like an interest rate earned on an investment. It thus measures how much income / cash flow, an investor is getting for each invested in equity.