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Ratios: Dividend Yield Ratio quiz #1

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  • What is the dividend yield ratio, how is it calculated, and what does it indicate to investors?
    The dividend yield ratio measures the percentage of a stock's market price that is paid out as dividends. It is calculated by dividing dividends per share by the market price per share and expressing the result as a percentage. This ratio helps investors assess the cash return they receive per dollar invested in a stock, indicating whether a company provides stable income (high yield) or is reinvesting for growth (low yield).
  • What does the dividend yield ratio measure for investors?
    It measures the percentage of a stock's market price that is paid out as dividends, indicating the cash return per dollar invested.
  • How do you calculate the dividend yield ratio?
    Divide dividends per share by the market price per share and express the result as a percentage.
  • What information do you need to calculate dividends per share if only total dividends and number of shares are given?
    You divide the total dividends by the number of shares to get dividends per share.
  • Why is the dividend yield ratio considered a market value ratio?
    Because it uses the market value (price) of the stock in its calculation.
  • What are the two main ways investors earn money from stocks?
    Through dividend payments (cash returns) and capital appreciation (increase in stock price).
  • What does a low dividend yield ratio typically indicate about a company’s strategy?
    It usually means the company is reinvesting its earnings for growth rather than paying them out as dividends.
  • What does a high dividend yield ratio suggest to investors?
    It suggests the company provides stable income through cash returns, making it attractive for income-focused investors.
  • How can investors use the dividend yield ratio to compare different companies?
    They can compare the percentage of cash return per dollar invested across companies to assess which offers better dividend income.
  • If a stock’s market price is $20 and the dividends per share are $1, what is the dividend yield ratio?
    The dividend yield ratio is 5% (1 divided by 20, then multiplied by 100).