1
Three different numbers attach to one share.
A share of stock is a small piece of the company: a stockholder is a part owner, and a dividend is that owner's cut of the profit.
par value
printed on the share
dividends are based on this
market value
what it trades at today
what you actually pay
book value
assets minus debts, per share
what the accounts say it is worth
Dividends come off the par value, not the price you paid
A ₱100 par share paying 8% pays ₱8, whether you bought it at ₱90 or ₱150. The price
you paid changes your yield, which is the next step, but it never changes
the cheque.
2
Dividend is shares times par times rate.
per share: 50 × 0.06 = ₱3
work out one first
300 shares × ₱3
then scale up
= ₱900
the total dividend
Doing one share first makes the answer easy to sanity-check. ₱3 a share sounds right
for a ₱50 share at 6%; ₱300 a share would not.
3
The yield measures the return on what you paid.
dividend = 50 × 0.09 = ₱4.50
from the PAR value
yield = 4.5060
over the MARKET price
= 0.075, so 7.5%
less than the 9% declared
Paying above par lowers your yield; paying below par raises it. The company's 9% is a
fact about the share, while 7.5% is a fact about your purchase.
4
Selling adds a second, separate return.
bought 300 at ₱80 = ₱24,000
the outlay
sold 300 at ₱72 = ₱21,600
the proceeds
capital loss = ₱2,400
separate from any dividend
Two returns, counted separately: dividends while you hold, and a gain or loss when you
sell. A share can pay well and still lose you money, and the reverse.
5
Variations: the rate asked for, the price for a target yield, the whole return.
The rate is the unknown: 400 shares of ₱20 par received ₱560 in dividends.
560 ÷ 400 = ₱1.40 a share
one share first
rate = 1.4020 = 0.07
over the PAR value
Dividing by the price paid instead of the par would give a yield, not the declared rate.
The price for a target yield: a ₱100 par share pays 6%. What price gives a 7.5% yield?
dividend = 100 × 0.06 = ₱6
fixed by the par value
6price = 0.075
yield = dividend ÷ price
price = 6 ÷ 0.075 = ₱80
below par
A higher yield than the declared rate always needs a price below par.
The whole return: 100 shares of ₱50 par at 4%, bought at ₱40, sold a year later at ₱44.
dividend: 100 × 50 × 0.04 = ₱200
from the par value
gain: 100 × (44 − 40) = ₱400
from the prices
total ₱600 on an outlay of ₱4,000 = 15%
add both returns
The dividend and the capital gain are worked out on different values, then added at the end.
6
Compare shares by yield, not by price.
bought at ₱60
360 = 5.0%
above par, lower yield
bought at ₱50
350 = 6.0%
at par, yield equals the rate
bought at ₱40
340 = 7.5%
below par, higher yield
₱4,000 for the opening problem
A cheaper share is not automatically better: the market usually prices a share below
par because something about the company worries buyers. The yield tells you the
return on offer, not the risk you are taking to get it.
On the exam
Periodical exams ask for the dividend on a number of shares, the dividend yield at a given price, or a capital gain or loss; entrance tests check that you take the dividend from the par value and the yield from the price. Work out one share first, then scale up. For a 10-second check, a share bought above par must yield less than its declared rate, and one bought below par more.
Remember the flow
Dividend from the PAR value · Yield over the MARKET price · Gain or loss on selling is separate
The declared rate belongs to the share. The yield belongs to your purchase.
