- Equity Analysis Part 3 - Introduction
- Free Cash Flow Valuation
- One, Two, and Three Stage FCF Calculations
- Share Price Multiple Methods in Equity Valuation
- Price to Earnings (P/E) Ratio (Leading P/E and Trailing P/E)
- Price to Book (P/B) Value Ratio and Equity Valuation
- Price to Sales (P/S) Ratio
- Price to Cash Flow Ratios
- Enterprise Value (EV) to EBITDA
- Dividend Yield for Valuing Equity
- Residual Income (RI) Valuation Model

# Dividend Yield for Valuing Equity

- A classic metric for valuing a stock.

Dividend Yield = Annual Dividend per Share / Price per Share

Trailing Dividend Yield = (Recently quarterly dividend per share × 4) / Price per share

**Leading Dividend Yield:**Calculated in the same manner, but forecasted future year dividend payments would be used.**Dividend Yield positives:**Payments are a key component of a stock's total return.

Can be expected with greater certainty than stock price appreciation.

**Dividend Yield drawbacks:**Dividend yield fails to reflect share price appreciation when evaluating a stock's total return potential.

Dividends paid in the current period reduce a company's capital available to invest in future growth.

The tradeoff between dividends and capital gains can be difficult to evaluate.

Not all companies pay dividends.

**Justifiable Dividend Yield breakdown:**

Div0/P0 = (rce - Growth rate of dividend payment) / (1 + g)

- The yield has a negative relationship with the dividend growth rate.
- The yield is positively related to the required return on common equity.

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