Can some one explain the following:–
1.) “The focus of DY is incomplete because it ignores capital appreciation”
2.)”Dividends are not as risky as the capital apreciation component of total return”
Does this mean that divdends are more volatile as the capital appreciation of an asset of a firm…???作者: Houjichasan 时间: 2013-4-12 22:09
For 1)
Div Yield = Div1 / Price0
But return = {[P1-P0] + Div1}/Price 0
[P1-P0]/P0 is the price appreciation portion of return which has been ignored in the DY.
2) Receipt of a dividend payment is more certain than capital appreciation. In order to paint a rosy picture - a company may continue to pay dividends - however it may not have enough sustainable projects / cash flows to show - and hence may not be able to increase its share price. So Dividends continue to be received (much smaller portion of return) but the capital appreciation never occurs.
