The Meredith Corporation issued $100 par value preferred stock 10 years ago. The stock provided an 8 percent yield at the time of issue. The preferred stock is now selling for $75.
To calculate the current yield of a preferred stock, you need to know the dividend payment and the current market price of the stock.
Step 1: Calculate the annual dividend payment.
The dividend yield is determined as a percentage of the par value. In this case, the preferred stock has a $100 par value and an 8 percent yield at the time of issue. Therefore, the annual dividend payment can be calculated by multiplying the par value by the yield:
Annual dividend payment = $100 × 0.08 = $8
Step 2: Calculate the current yield.
The current yield is calculated by dividing the annual dividend payment by the current market price of the stock and then multiplying by 100 to express it as a percentage:
Current yield = (Annual dividend payment / Current market price) × 100
In this case, the current market price of the preferred stock is $75, so the current yield can be calculated as follows:
Current yield = ($8 / $75) × 100 = 10.67%
Therefore, the current yield of the preferred stock is approximately 10.67%.