Question of the Week

A registered representative has been following PDQ stock in the market over the past year. He has noticed that the stock’s market price has dropped over the past six months, but that the dividends paid on the stock have remained the same. This would indicate that:

a) The stock is anti-cyclical
b) The current yield on the stock has gone up
c) The current yield on the stock has gone down
d) It is a utility stock


Answer:

The correct answer is B.

Current yield compares the current price of acquiring the stock to the income from the stock, the dividends. In this case, the income has stayed the same while the price to acquire the stock has dropped. This means that the actual return on a dollar invested has gone up.