Use Cases of Artificial Intelligence in Commercial Banking
In a previous couple of articles, we have already seen how artificial intelligence is useful in the field of commercial banking. We have also seen the various advantages and disadvantages of deploying artificial intelligence in commercial banking lending. However, it needs to be understood that lending is not the only department in commercial banking that […]
The Importance of Personal Finance
There is no shortage of education in the field of finance. There are various academicians who work tirelessly in the field of finance. Many theories have been developed, and many conjectures have been disproved. Every year thousands of people graduate with finance as their major. However, most of these people are trained in the field […]
Types of Orders in the Forex Market
Why Orders are Important in Forex Markets ? There is a need for some form of automation in the Forex markets. This is because the market runs 24 by 7. Therefore the value of investor holdings and therefore their net worth keep changing 24 by 7. Hence if an open position is not managed for […]
Government Regulations Which Impact Start-Ups
Start-ups are private entities. It is true that start-ups thrive because of the resourcefulness and innovation of the people behind the start-up. However, the empirical data suggests something equally interesting. It is important to note that many successful start-ups tend to be located in the same geographic areas. This is because many times, governments in […]
Compounding Intervals and Interest Rate
Theoretically there are two types of interest rates, simple and compounding. However, in finance the word interest usually refers to compound interest. Simple interest almost never factors in financial calculations. In all calculations related to present values and future values, compound interest is used. However, as a student of corporate finance, it is essential to […]
Investors can be classified into types. The two predominant types are growth oriented investors and value oriented investors. Growth oriented investors invest in young growing companies. They expect returns in the form of capital appreciation backed by the high rate growth in the operations and profitability of the firm. On the other hand value investors invest in mature stable companies and expect returns in the form of stable cash flows paid in the form on dividends over and over again. The Dividend Yield ratio is meant for the second type of investors i.e. the value investors.
Dividend Yield = Annualized Dividend / Current Stock Price
Most companies pay dividends on a quarterly basis rather than on an annual basis. Hence for the purpose of finding out the dividend yield, analysts often annualize the dividend paid in the most recent quarter. They think it better projects the dividend paying ability of a company.
Value investors often look at the stock of a company, the way a real estate investor looks at rental properties. They expect to put money one down one time and expect to receive payments for the rest of their lives. Hence the dividend yield tells them a percentage of their original investment that they would receive each year, if they invested in the stocks right away.
The dividend yield ratio assumes that the company in question will continue making dividend payments at the same or higher rate than it is currently doing. A historical analysis of the stock market will validate this assumption. Historically companies that have been making dividend payments continue to do so. This is because a dividend cut is adversely received by the market as a very negative signal and the share price immediately plummets. It is therefore reasonable to assume that the company will continue to pay dividends until something untoward happens.
The dividend yield company must be compared to competing investment options to get a better picture of the operations of the firm. It must also be applied to the company’s own historical records to validate the fact that it has indeed been making regular dividend payments.
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