
Note:
The following is used with the permission of the original
author.

Section
5: FiveYear Potential
The final step in completing the
Stock Selection Guide is Section 5, "5Year
Potential," determining the stock's current and future dividend yield. The calculations
are fairly simple; if the stock doesn't pay dividends, you can skip this section
altogether.

Calculating Present Yield
 To calculate the present yield,
the percentage of the stock's price that is paid
back in dividends each year, first figure out the
total dividends that will be paid in the current
year. You can multiply the most recent quarterly
dividend by four to find the current dividend. Next
divide the dividend by the current price of the stock,
and multiply by 100 to determine the "Present
Yield or % Returned on Purchase Price".

Calculating Average Yield
 Now, you need to calculate
the the Average Earnings Per
Share over the next five years.
Go back to the Section 1 graph
and look at your trend line.
Find where it intersects each
of the next five years, and
determine the actual amount
of Earnings Per Share you expect
the stock to earn in each year.
In this stock's case, you might
figure that the next five year's
E/S are the following:
$0.92
$1.04
$1.12
$1.24
$1.38
Adding these together, you
get $5.70. Now divide by
5 to get the Average E/S,
or $1.14.
A shortcut to determine
the Average Earnings Per
Share over the next five
years is to simply use
the projected earnings
per share figure from the
third (middle) year of
the next five year period.
Assuming that future earnings
have been determined by
using a straight trend
line, this figure will
be the Average EPS. As
you can see in the example
above, the calculated figure
is $1.14 and the middleyear
figure is $1.12, just a
slight variance due to
the imprecision of the
graph. Now, multiply $1.14
times the Average % Payout
from Section 3, Column
G, Row 7 (in this case
case, 56.2%, or .562),
which gives you $0.64 (the
Average Dividend). Divide
by the stock's Current
Price, $15 7/8, to get
the Average Yield, which
equals 0.040, or 4.0%.
Based on your initial investment,
this stock will pay an
average annual dividend
over the next five years
that is 4.0% of the purchase
price.
As
with many other parts
of the Stock Selection
Guide, you should use your
judgment in considering
the stock's average yield
and payout. If the company's
Average Yield and/or Average
% Payout have been rising
in recent years, you may
wish to use higher figures
for these calculations
than the calculated averages.
Likewise, if a downward
trend is indicated, you
might use a lower figure.

Interpreting
the Results
 This
section
is not
as critical
because
the SSG
is best
suited
in analyzing
growth
stocks
which may
not pay
a high
dividend
or any
dividend
at all.
But often
the dividend
yield
can provide
the extra "kicker" to
help boost
the Total
Return
of a mediumgrowing
stock
above the
15.0% goal.
In
cases
where
you are
looking
at incomeproducing
investments,
you can
use the
Present
and Average
Yield
as benchmarks
to compare
the stock's
return
to other
yielding
investments
such
as bonds,
savings
accounts
or money
market
funds,
for instance.
You
can
also
use the
stock's
yield
when
comparing
stocks
for
potential
purchase:
if you
expect
two
stocks
to each
return
15%
annually,
the
stock
with
the
higher
dividend
yield
may
often
provide
the "safer" investment,
one
that
is
less
dependent
on
the
uncertainties
of
the
general
market.





*
This site not affiliated with the National Association of Investors
Corporation (“NAIC”) in any way, nor does NAIC
sponsor or endorse this web site or any of the products or
services offered herein.
The author founded a successful investment club and has been a member of NAIC
since 1990.
Stock
Investment Guide, SIG, Portfolio Analysis Review, Comparison
Analysis Review,
CAR, and PAR are trademarks of Churr Software.

