Unformatted text preview: not pay a dividend, the stockholder would have to sell 2.5 shares of
stock to raise the $ 5 that would have come from the dividend. 18
question of whether stocks with higher dividend yields deliver higher total returns. If the
dividend story holds up, you would expect stocks with high dividend yields to also earn
high returns. Others take a more focused approach of looking at only those stocks that have
the highest dividend yields. One example is the Dow Dogs strategy, where you buy the 10
stocks in the Dow 30 that have the highest dividend yields. In recent years, a third strategy
of buying stocks that have the biggest increases in dividends (rather than the highest
dividends) has also been tested. In this section, the empirical evidence that has accumulated
on all of these fronts will be presented.
Do higher yield stocks earn higher returns?
The dividend yield is usually computed by dividing the dividends per share by the
current stock price. Thus, it is defined to beDividend yield = Annual dividends per share / Current Stock price
However, there are variations in how the annual dividends per share are computed, leading to
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.
- Spring '11