Understanding Yield

Compulsory learning for any Financial Awakening (includes SME case study).

Regardless of whether you are investing or gaming, you will eventually come to a fork in the road. It will be a financial choice, or series of choices you must make. Do you allocate your limited resources to venture A or B, or C? This decision might be long lasting, so best that you do not get it wrong.

More often than not a sound investment decision can be made by simply comparing the current yields of the available investment options. On the Goldsmith Money YouTube channel yesterday (embed below), we examined the current yields of Soccer Manager Elite teams Dinamo Zegreb and Arsenal, based on their most recent game dividends. It is apparent that a decision one way or another will have major long term implications on an investor’s financial success. So regardless of whether you this is an SME beta test or the real world, we generally want to be maximising our returns and this is how it is done.

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Calculating Yield…

is easy!

The formula is: Dividend per share / Current share price.

Example 1:

A share trading at $100 pays a $5 dividend – the dividend yield is $5 / $100 = 5%

In this example the share is providing the investor with a 5% yield. If only one dividend is paid per year – this share would be said to provide a yield of 5% per annum. Should it pay 2 x $5 dividends per year, it might be said to provide a 5% semi-annual dividend. Alternatively the dividend are added together and the share is said to provide the owner with a 10% annual dividend yield.

Yield doesn’t have to be limited to just dividends. It might be calculated on interest income or business earnings.

Example 2:

You deposit $100 with the bank for 1 year and at the end of the term the bank pays you $2, plus returns to you the principle. Earnings / Principle = 2 / 100 = 2%. This was interest income (yield) derived from the single bank deposit is 2% per annum.

Example 3:

Your business into which you invested $100,000 produced a net profit for the year of $10,000. Earnings / Capital Contributions = $10,000 / $100,000 = 10%. The earnings yield of the business is 10% per annum. This financial measure is sometimes referred to as the Rate of Return (RoR).

When it comes to making a financial choice between multiple investments; it is prudent to compare the yields of those investments first.

Soccer Manager Elite Beta Test – Case Study

In last night’s Soccer Manager Elite (Beta Test) we compared the yields of Dinamo Zagreb and Arsenal shares. Let’s examine the numbers.

Dacho had used 30,000 coins to buy 300 shares in Dinamo Zagreb at a price of 100 coins each. After Wednesday’s game Dacho received a dividend of 93 coins. Calculating the yield:

Dividend per share = Total dividend / # of shares = 93 / 300 = 0.31.

Dividend yield = Dividend per share / share price = 0.31 / 100 = 0.0031 = 0.31%

So investing in Dinamo Zagreb is providing shareholders with a current yield of 0.31% per game. Over a season of 40 games this would equate to a 12.4% return on Dacho’s initial investment (all other things being equal).

Tyki on the other hand decided to invest 23,000 coins in Arsenal. He bought 230 shares for 100 coins each and subsequently received a post-game dividend of 718 coins. The current yield on the Arsenal shares is:

Dividend per share = Total dividend / # of shares = 718 / 230 = 3.12 coins.

Dividend yield = Dividend per share / share price = 3.12 / 100 = 3.12%

The dividend yield per game on the Arsenal shares is 3.12%. Over a 40 match season the total dividends received would equate to a whopping 124.8% return on Tyki’s initial investment (all other things being equal).

In this scenario the shares in Arsenal are yielding circa 10x those of Dinamo Zagreb. Whilst there might be other strategic reasons for any investment decision, the matter of YIELD should never be overlooked. If you can capture a high, reliable, and regular yield early; this income can be used to fund many more investment decisions – generating even more income for this savvy investor.

Congratulations to the following SME managers who successfully located the treasure –

Emblem of House Reubo, Taurion.
  • Dacho 1888
  • Master T
  • Pratik Jathan

Winners have now been sent their 50 CHI prizes and the competition is now closed. Thank you to all the participants.

Please be sure to subscribe to the Goldsmith Money YouTube channel so to avoid missing the next XAYA / SME competition.

Categories: Yield

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