How to work out your returns on a dividend paying stock

Julie Brownlee, Fsp Invest, 11 Apr. 2014

Tags: returns, calculating returns, how to calculate return on dividend paying share, returns, calculate capital gain, dividends, share price,

If you invest for dividends, you know how much your share pays out to you. But chances are, if you’ve invested in solid dividend paying companies, over time their share prices will also rise. This means you’re benefitting in two ways. So how can you calculated what return a share is generating? Let’s look at how…

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Your returns from buying shares

This is a percentage amount of your initial investment, Gareth Stokes in Fear, Greed and the Stock Market explains.

It’s quite simple to work out. Let’s go through an example so you can see what you have to do.

Let’s say it’s the start of 2013. You’ve been doing some research and you come across a share that looks very promising. So you buy 250 shares of ‘Booster Brands’.

When you buy the shares, they’re trading at R145 each. So your initial total investment comes to R36,250 (R145 x 250).

Now a year passes, it’s the beginning of 2014. You want to know what your return is from the investment you made into Booster Brands a year ago.

To do this you need to know two things:
  • The closing share price of the share to the end of the period you’re looking at; and
  • The amount of the dividends.
Booster Brands is now trading at R170 per shares. You received two dividends through the year amounting to R7.04.

Why would a tiny South African stock in the tech sector to rise 515.85% in 40 months?

I don't know. And to be quite candid, I don't care!

The only thing I care about… the only thing worth knowing… is whether a certain stock is going to rise – and when.

Here, let me show you what I mean…

How to calculate your return

So here’s how to calculate your return:
  • Take your buy in price and subtract the latest closing price (R170-R145=R25). This is the capital gain over the period).
  • Add in your dividends to this amount (R25+R7.04=R32.04).
  • Divide the gain above by the initial price (R32.04/R145=0.2209).
  • Multiply this figure to get the percentage return (0.2209x100=22.09%)
So you’ve made an impressive 22% over the period in question.

Now of course this isn’t a real return as you still own the share. But it’s something you can do to keep an eye on your investments when you do sell your shares

So there you have it, how to work out your returns on a dividend paying stock.

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