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Q&A on Dividend Yield & Present Value

5:00 PM  Pisstol Aer   Labels:
A reader of mine inquiry me recently about the dividend yield which I highlight in my book.  The questions are very interesting and I would like to share them for the benefit of my readers.  Below Q&A are presented in its original form without editing.


Q1: I have been using your performance chart to identify suitable candidates. I have done this without taking net dividend yield into consideration as I am a bit confuse on the particular share price to choose. Knowing that Dividend Yield = Annual Dividends per Share / Price Per Share, that means the dividend yield will keep changing daily as the price will differ from day to day. In view of this, I wonder which share price should be taken for calculation, is it the price as at financial report date?

A:You should use the closing price of the company as of its financial year end.  Reason is simple.  The annual dividend per share you get from respective financial report is as of the end of its financial year.  Therefore, all other variables used for any financial analysis should also be the end of the financial year of respective company.
 
Q2: The dividend yield by itself don't tell anything unless a comparison is made with the same industry. If I were to do a comparison of the same industry, is it both companies must come from the same sector? (There might be some companies from different sectors like trading, main market etc doing the same types of businesses.)

A: I don't bother to compare the dividend yield with other companies in the same industry.  Most importantly, you should familiar with the company, know what they are doing and to ensure that their financial condition is strong and healthy.  Bear in mind that it is impossible to find a perfect company and to have a perfect investment.  Risk management is the key here.
 
Q3: When using your methods to calculate future value of a company, I discover that at certain times some companies might encounter negative operating cash flows. (PV = CF x (1+g)1 / (1+r)1). If the current CF is negative, how shall I go about it. I have attached a copy of my chart for your attention (I have added in some financial ratios which I picked up after reading other books on investments but eventually i still stick to your chart for evaluation,)

A: Thanks for your faith on my methods.  Well, it is impossible to calculate a company's PV is its latest CF from Operation is negative.  The alternative way is to use its EPS.  I will share how to use EPS to calculate PV in my book to come.  However, do bear in mind that there is no right or wrong answer for calculating PV as it involves in a number of assumptions.  That is why I do not encourage my reader to use PV for judging financial quality of a counter and/or buy/sell timing.
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Q&A on Dividend Yield & Present Value
Q&A on Dividend Yield & Present Value
Reviewed by Pisstol Aer
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Rating : 4.5