Dividends calculation

Ciprico

I hope someone could clarify this
Say a company's shares were valued at £100 and they paid £5 dividend. (ie 5%)
The share price collapses to £50
All other aspects being equal, would the dividend remain at £5,  (now 10%),
or follow the collapse so remain at 5% of £50 =  £2.5
Thanks 

ffacoffipawb

Depends on why the share price collapsed.

Username999

If the £5 was declared then the yield becomes 10%.

ppyim

dividend is paid per share rather than share price. how much will be paid is down to the company's decision. 

ColdIron

If the company decided to pay the same dividend in terns of pence per share then, all other aspects being equal, you would still receive £5. Of course all other aspects may not remain equal

eskbanker

As above, the answer is 'it depends', but as a shareholder you'd probably hope that a company would concentrate on safeguarding the long-term future by cutting its cloth according to reduced circumstances, rather than sticking to an unaffordable level of dividend distribution to try to keep investors happy in the short-term.... 

Audaxer

123mat123 said:

I hope someone could clarify this
Say a company's shares were valued at £100 and they paid £5 dividend. (ie 5%)
The share price collapses to £50
All other aspects being equal, would the dividend remain at £5,  (now 10%),
or follow the collapse so remain at 5% of £50 =  £2.5
Thanks 

If the company maintained the dividend at £5, the yield would be 10% for anyone investing after the price had collapsed to £50. There is no guarantee that the dividend amount would be maintained, but there are some Investment Trusts that have increased the annual dividends paid every year for decades despite a number of equity crashes.

Thrugelmir

Audaxer said:

123mat123 said:

I hope someone could clarify this
Say a company's shares were valued at £100 and they paid £5 dividend. (ie 5%)
The share price collapses to £50
All other aspects being equal, would the dividend remain at £5,  (now 10%),
or follow the collapse so remain at 5% of £50 =  £2.5
Thanks 

If the company maintained the dividend at £5, the yield would be 10% for anyone investing after the price had collapsed to £50. There is no guarantee that the dividend amount would be maintained, but there are some Investment Trusts that have increased the annual dividends paid every year for decades despite a number of equity crashes.

Investment trusts , like some companies,  have retained earnings reserves on which to draw to smooth out dividends paid to shareholders. A declaration of a dividend does not guarantee that there was sufficient EPS in the accounting period to cover the dividend. As far as UK companies are concerned. Dividend cover in broad terms has been in decline for some years. Investment Trusts are also allowed to distribute draw upon capital reserves to pay dividends. Some IT's which invest in low yielding sectors have used this tool as a way of attracting income seekers to become investors. Thereby broadening the IT's shareholder base. 

Thrugelmir

123mat123 said:

I hope someone could clarify this
Say a company's shares were valued at £100 and they paid £5 dividend. (ie 5%)
The share price collapses to £50
All other aspects being equal, would the dividend remain at £5,  (now 10%),
or follow the collapse so remain at 5% of £50 =  £2.5
Thanks 

As a rule of thumb. The higher the yield on offer rises. The less likely the dividend on offer will be maintained (as far as the market is concerned). 

Shell is a company that appears to be suffering. A fall in the prices that are obtained in it's core markets (oil , gas, chemicals and renewable energy) means that it'll find it harder to concurrently pay dividends, reduce debt, fund capital projects and conduct share buybacks. The virus threat merely compounds the situation futher. 

Audaxer

Thrugelmir said:

Audaxer said:

123mat123 said:

I hope someone could clarify this
Say a company's shares were valued at £100 and they paid £5 dividend. (ie 5%)
The share price collapses to £50
All other aspects being equal, would the dividend remain at £5,  (now 10%),
or follow the collapse so remain at 5% of £50 =  £2.5
Thanks 

If the company maintained the dividend at £5, the yield would be 10% for anyone investing after the price had collapsed to £50. There is no guarantee that the dividend amount would be maintained, but there are some Investment Trusts that have increased the annual dividends paid every year for decades despite a number of equity crashes.

Investment trusts , like some companies,  have retained earnings reserves on which to draw to smooth out dividends paid to shareholders. A declaration of a dividend does not guarantee that there was sufficient EPS in the accounting period to cover the dividend. As far as UK companies are concerned. Dividend cover in broad terms has been in decline for some years. Investment Trusts are also allowed to distribute draw upon capital reserves to pay dividends. Some IT's which invest in low yielding sectors have used this tool as a way of attracting income seekers to become investors. Thereby broadening the IT's shareholder base. 

I think it is only fairly recently that Investments Trusts have been able to pay dividends from capital, whereas some ITs have been paying increased dividends for over 50 years by smoothing out income. For investors looking for reliable increasing income certain ITs can be a good inclusion in a portfolio, however potential investors need to do their research and understand how ITs work. 

Thrugelmir

Audaxer said:

Thrugelmir said:

Audaxer said:

123mat123 said:

I hope someone could clarify this
Say a company's shares were valued at £100 and they paid £5 dividend. (ie 5%)
The share price collapses to £50
All other aspects being equal, would the dividend remain at £5,  (now 10%),
or follow the collapse so remain at 5% of £50 =  £2.5
Thanks 

If the company maintained the dividend at £5, the yield would be 10% for anyone investing after the price had collapsed to £50. There is no guarantee that the dividend amount would be maintained, but there are some Investment Trusts that have increased the annual dividends paid every year for decades despite a number of equity crashes.

Investment trusts , like some companies,  have retained earnings reserves on which to draw to smooth out dividends paid to shareholders. A declaration of a dividend does not guarantee that there was sufficient EPS in the accounting period to cover the dividend. As far as UK companies are concerned. Dividend cover in broad terms has been in decline for some years. Investment Trusts are also allowed to distribute draw upon capital reserves to pay dividends. Some IT's which invest in low yielding sectors have used this tool as a way of attracting income seekers to become investors. Thereby broadening the IT's shareholder base. 

I think it is only fairly recently that Investments Trusts have been able to pay dividends from capital, whereas some ITs have been paying increased dividends for over 50 years by smoothing out income. For investors looking for reliable increasing income certain ITs can be a good inclusion in a portfolio, however potential investors need to do their research and understand how ITs work. 

CTY has drawn on reserves 6 times in those 50 years.  As dividends reduce asset value per share. It's a return of your own existing capital. Good marketing spiel. 

PS I'm not criticising the trusts themselves as investments. Held many over the years.