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Thread: Pct of dividend return

  1. #1 Pct of dividend return 
    Forum Cosmic Wizard
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    Hi, I'm visiting from other forum subjects I usually participate in.

    I am struggling with the proper way to establish a percentage of investment realized through particular stocks as a statement of the dividend return on investment without regard to the overall net gain or loss on the stock.

    Example No. 1 -- It is clear that if I have purchased a stock for $10 and sold it for $10 and received $2 in dividends, the dividend return has been 20 percent on my investment.

    Example No. 2 -- If I purchased the stock at $10 and received $2 in dividends and then sold the stock at only $5, how do I calculate the dividend return as a percent of my investment? Does it remain 20 percent based on my original $10 investment?
    Or does it now become 40 percent based on the net cost of the original investment of $5?

    Example No. 3 -- If I purchased the stock at $10 and received $2 in dividends and then sold the stock for $15, how do I calculate the dividend return as a percent of my investment? Does it remain 20 percent of my original $10 investment. Or does it become 40 percent based on the net cost of my original investment?

    Somehow, it seem incongruous that one could consider a net investment as being $5 if the $10 stock either gained or lost $5.

    Yet it does seem logical that if one invested $10 in a stock and sold it for $5, his net investment can be consider $5 since that is all it actually cost in the long run. But, if the stock is sold at $15 or a $5 profit, the net cost (cost minus profit) is still $5.

    So, I think, ultimately, what my question is relates to is this: upon sale of a stock, what should the dividends be compared to in order to determine what your dividend return was as an expression of the investment -- the original gross cost or the subsequent net cost?

    If someone can clear up the logic of this question, I can then establish the proper math for my spread sheet.


    Science without religion is lame, religion without science is blind. -- Albert Einstein

    If God DID do all of this, is He not the greatest scientist of all? -- dt, 2005
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  3. #2 Re: Pct of dividend return 
    . DrRocket's Avatar
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    Quote Originally Posted by daytonturner
    Hi, I'm visiting from other forum subjects I usually participate in.

    I am struggling with the proper way to establish a percentage of investment realized through particular stocks as a statement of the dividend return on investment without regard to the overall net gain or loss on the stock.

    Example No. 1 -- It is clear that if I have purchased a stock for $10 and sold it for $10 and received $2 in dividends, the dividend return has been 20 percent on my investment.

    Example No. 2 -- If I purchased the stock at $10 and received $2 in dividends and then sold the stock at only $5, how do I calculate the dividend return as a percent of my investment? Does it remain 20 percent based on my original $10 investment?
    Or does it now become 40 percent based on the net cost of the original investment of $5?

    Example No. 3 -- If I purchased the stock at $10 and received $2 in dividends and then sold the stock for $15, how do I calculate the dividend return as a percent of my investment? Does it remain 20 percent of my original $10 investment. Or does it become 40 percent based on the net cost of my original investment?

    Somehow, it seem incongruous that one could consider a net investment as being $5 if the $10 stock either gained or lost $5.

    Yet it does seem logical that if one invested $10 in a stock and sold it for $5, his net investment can be consider $5 since that is all it actually cost in the long run. But, if the stock is sold at $15 or a $5 profit, the net cost (cost minus profit) is still $5.

    So, I think, ultimately, what my question is relates to is this: upon sale of a stock, what should the dividends be compared to in order to determine what your dividend return was as an expression of the investment -- the original gross cost or the subsequent net cost?

    If someone can clear up the logic of this question, I can then establish the proper math for my spread sheet.
    It is not a matter of logic. It is a matter of definition. The definition should suit your purpose.What is your purpose ?


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  4. #3  
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    Possibly I was not too clear on that in the original post.

    I think I am trying to determine what my dividend return has been on a stock that has been sold expressed as a percentage of what I actually risked on the stock.

    I have a spread sheet in which I track my $ returns of dividend from which I compute the percent of that investment which has been returned as dividend. This is simple so long as I own the stock.

    But when I sell the stock, if I want to compute the overall percent of return looking only at dividends.

    If I have, for example two stocks, one of which cost $10 and the other which cost $20 and they have combined to return $3 in dividends, I have gained 10 percent in dividends.

    If I then sell the $10 stock for $5, how do I express my overall return of dividends as a percentage in a totals column? Do I still have, overall, a total investment of $30, or should that total investment now be considered only $25 because the $10 stock ended up actually costing me only $5? Conversely, if I sell the $10 stock for $15, should my total investment still be computed at $30 or should it be reduced to $25 because my net investment is reduced by that $5 profit?

    It is possible that any of these three possibility can be justified, though the adjustments would result in a higher percentage of return.

    I suppose if the cost is not adjusted, I now have an expression of the dividend return based on actual investment while if the cost is adjusted, I now have an expression of dividend return as based on actual net cost of the stocks.

    I think my question is more related to which of these views actually reflects a more accurate overall picture of dividend returns? I can figure out the math formula if I can determine which is the more accurate representation of my return.
    Science without religion is lame, religion without science is blind. -- Albert Einstein

    If God DID do all of this, is He not the greatest scientist of all? -- dt, 2005
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  5. #4  
    . DrRocket's Avatar
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    Quote Originally Posted by daytonturner
    I think my question is more related to which of these views actually reflects a more accurate overall picture of dividend returns? I can figure out the math formula if I can determine which is the more accurate representation of my return.
    That is an accounting question, not a mathematics question.

    I think in most cases one is interested in the return on the initial investment.

    But again it depends on your purpose, which you have not made clear. Just saying "interest rate of return" does not define your purpose. You can define "interest rate of return" any way that you want to.
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  6. #5  
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    I agree, I was probably trying to combine two different expressions into one figure.

    One way, I get a pct of actual investment; the other way I get a pct of net investment

    So it becomes a matter of choosing which of these figures I want to compute -- or maybe both of them, but without trying to combine them into one figure.

    Thanks for your help in clarifying my puzzle in defining the figures I am looking for. Guess if you don't know what you are actually looking for, you don't know if you have found it.
    Science without religion is lame, religion without science is blind. -- Albert Einstein

    If God DID do all of this, is He not the greatest scientist of all? -- dt, 2005
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