The market price for Microsoft Corporation closed at $30.48 and $27.91 on December 31, Year 1, and Year 2, respectively. The dividends per share were $0.52 for Year 1 and $0.52 for Year 2.
a. Determine the dividend yield for Microsoft on December 31, Year 1, and Year 2.
(Round percentages to two decimal places.)
b. Interpret these measures.
Answer:
a.
Year 1: Dividend Yield = $0.52 ÷ $30.48 = 1.71%
Year 2: Dividend Yield = $0.52 ÷ $27.91 = 1.86%
b. Dividends per share remained constant from Year 1 to Year 2. In addition, the dividend yield increased from 1.71% in Year 1 to 1.86% in Year 2. The increase in the dividend yield is a result of a slight decrease in the stock price. Microsoft provides a small return to the shareholder in terms of a dividend yield and an additional return in terms of price appreciation of the stock.