If the stock price rises while the dividend remains unchanged, what happens to the dividend yield?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

If the stock price rises while the dividend remains unchanged, what happens to the dividend yield?

Explanation:
Dividend yield = annual dividend per share divided by price per share. When the dividend stays the same but the stock price rises, the denominator gets larger while the numerator stays fixed, so the yield falls. For example, if the annual dividend is $2 and the price goes from $40 to $50, the yield drops from 5% to 4%. In general, the yield moves inversely to price when the dividend is unchanged, so it decreases as the price increases.

Dividend yield = annual dividend per share divided by price per share. When the dividend stays the same but the stock price rises, the denominator gets larger while the numerator stays fixed, so the yield falls. For example, if the annual dividend is $2 and the price goes from $40 to $50, the yield drops from 5% to 4%. In general, the yield moves inversely to price when the dividend is unchanged, so it decreases as the price increases.

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