Confirm Dividend Yield

Question

I would like to set up a passive income. I was looking at investing in stocks, but I don't know much about it. I am thinking about choosing at least 20 solid companies that pay a good dividend.

As an example, if I were to invest in MCD, which is McDonalds. http://www.marketwatch.com/investing/stock/mcd

The yield is 3.29% and the value is $114 per share. Assuming that the price remains exactly the same for an entire year, and that I purchase only one share, then this should be the math for calculating the yield: 114 x 0.0329 = 3.7506

So if I were to buy 1 share, and prices are stable, I should assume that I will receive a check for $3.75.

Is my math correct? Also, are there any fees/deductions, or would I receive the amount in full, which should be $3.75?

Answer 1

Is my math correct?

The Math is correct, however Dividends don't work this way. The Yield is Post Facto. i.e. Given the dividend that is declared every quarter, once calculates the yield. The dividends are not fixed or guaranteed. These change from Quarter to Quarter or at times they are not given at all.

The yield is 3.29% and the value is $114 per share. Assuming that the price remains exactly the same for an entire year, and that I purchase only one share, then this should be the math for calculating the yield: 114 x 0.0329 = 3.7506

What the Link is showing is that last dividend of MCD was 0.94 for Q3; that means total for a year will be 0.94*4 [3.76], this means yield will be 3.29%.

Note this year there were only 3 Dividend was 0.89 on 26-Feb, 0.89 on 2-Jun and 0.94 on 29-Nov. It is unlikely that there will be one more dividend this year. So for this year the correct post facto calculation would be 0.89+0.89+.94 = 2.72 and hence an yield of 2.38%

Also, are there any fees/deductions, or would I receive the amount in full, which should be $3.75?

There are no fee deducted. Not sure about US tax treatment on Dividends.

Answer 2

There are lots of provisos, but in general you are correct.

The provisos, off the top of my head:

• The price remains the same.
• The distribution to shareholders remains the same (the dividend yield is usually quoted on the preceding 12 months at the current price, so to get the same amount in the next twelve months, the company needs to distribute the same amount per share to stockholders).

The only fees will be any brokerage fees when you purchase the stock. I haven't seen any handling fees when you get the dividend, but it may depend on how you hold the stock.