REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Dividend
yield
The first
figure, in column 5, shows the historic dividend yield, which
is the annualised gross dividend per share for the last reported
period expressed as a percentage of the latest share price.
Columns 6 and 7 show the prospective dividend yields, based
on the latest share price and the consensus dividend forecasts
for the following two periods.
The dividend
yield expresses the gross annual dividend of a share as a percentage
return on investment at the prevailing market price. To calculate
each dividend yield, the net dividend per share, shown immediately
above, is grossed up by the appropriate rate of income tax,
and is then expressed as a percentage of the latest share price.
The calculation
of dividend yield is performed as follows:
Step 1:
For the
purpose of illustration, it is assumed that the standard income
tax rate, applicable to dividends which are declared net, is
20%. On this basis, it follows that the net dividend per share
is 80% of its gross value. The grossed-up dividend per share
is therefore calculated as follows, assuming a 20% tax rate:
100
NET DIVIDEND
PER SHARE X ----------- = GROSS DIVIDEND PER SHARE
(100-20)
Step 2:
GROSS
DIVIDEND PER SHARE
-------------------------------
X 100 = DIVIDEND YIELD (%)
LATEST SHARE
PRICE
Foreign
income dividends
Attention
is drawn to the presentation of companies which declare all,
or part, of their annual dividend as a Foreign Income Dividend
(FID).
FID's do
not carry a tax credit for tax exempt shareholders to reclaim.
To compensate, the FID element of the dividend declaration is
enhanced by 25% with UK Income Tax becoming payable by shareholders
who are assessed for it.
For comparison
purposes within Company REFS, the net amount of the enhanced
FID is treated as part of the historic net dividend record,
and the gross amount is treated as part of the gross dividend
yield. This treatment is consistent with the dividend forecasts
received from brokers.
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