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FM Written Assignment Unit #4

Portfolio Evaluation

The dividend yield refers to the current return on investment. The dividend yield is calculated by

dividing a stock's yearly dividend by its share price (Jonick, 2017). Yield can be stated as a

percentage of cost or as a percentage of current market value. Dividends expressed as a

proportion of the price paid for a stock are referred to as yield on cost. It divides the current

dividend per share by the purchase price of a company. Yield on current market value is

calculated by dividing the current dividend per share by the current stock price. The immediate

benefit is that it examines current return on investment dollars, which is a more accurate

reflection of current performance than yield on cost which is determined based on the historical

investment cost.

Basis of determining weighted average yield

For this portfolio, the weighted average yield will be calculated by first computing the current

market value, projected current yield, weighted average factor, and average yield for each

portfolio position, as well as the total current market value for all portfolio holdings.

Step 1: Determine the current market value of each asset using the formula

Current market value = No. of shares X Current Market Price

Step 2: Calculate the total portfolio market value by adding up all the shares market value.

Followed by calculating the estimated current yield, by using the formula

Step 3: Determine the current yield

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Estimated current (dividend) yield is calculated by dividing the cash dividends per share by the

market value per share (CFI, 2024). For our table, we are modifying this formula to divide total

dividends by total market value, achieving the same results. The dividend yield formula is used

to help analyze the return on stock investments.

Current Yield = Annual dividend/ interest payment / Current Shares Price

Step 4: Determine the weighted average factor which is determined by the following formula

Weighted averages can indicate how dependent a portfolio's performance is on each stock.

Calculate the weighted average by dividing each stock's cash value by the total portfolio value,

then multiply by 100 to convert to a percentage. The Share weighted average factor (W) = The

current share total market value / total portfolio market value Note = to check the calculations,

the total sum of The Share weighted average factor shall equal to one.

Step 5: Calculate the Weighted Average Yield for each share, which is determined by the

following formula Share Weighted Average Yield = Share Weighted Average Factor (W) % *

Share current yield % (X).

Step 5: Determine the weighted average yield

The weighted average yield for each portfolio position is found by multiplying the estimated

current yield by the weighted average factor. This provides the portfolio position's contribution

towards the total weighted average yield for the portfolio itself. The total weighted average yield

is found by adding together the weighted average yields for all portfolio positions.

The workings are summarized in the Excel table below.

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Portfolio
Current Estimated Estimated Weighted Weighted
Type of Stock Position Current
Company Name Market Dividend/I Current Average Average
Investment Symbol (# of Market Price
Value nterest Yield Factor Yield
shares)
Common stock Altria MO 119 50.04 $5,954.76 $247.00 4.15% 11.23% 0.47%
Common stock AT&T T 173 32.09 $5,551.57 $325.00 5.85% 10.47% 0.61%
Common stock Chevron CVX 26 125.82 $3,271.32 $111.00 3.39% 6.17% 0.21%
Common stock Coca Cola KO 59 54.33 $3,205.47 $77.00 2.40% 6.04% 0.15%
Common stock Duke Energy DUK 65 87.68 $5,699.20 $206.00 3.61% 10.75% 0.39%
Common stock Johnson & Johnson JNJ 31 128.84 $3,994.04 $86.00 2.15% 7.53% 0.16%
Common stock McDonalds MCD 52 214.31 $11,144.12 $176.00 1.58% 21.01% 0.33%
Common stock Pepsi Cola PEP 17 130.74 $2,222.58 $44.00 1.98% 4.19% 0.08%
Common stock Philip Morris Intl PM 70 86.75 $6,072.50 $280.00 4.61% 11.45% 0.53%
Common stock Proctor & Gamble PG 52 113.85 $5,920.20 $133.00 2.25% 11.16% 0.25%

Total Portfolio Market Value $53,035.76

Weighte Averatge Yield: 3.18%

Recommendation and Conclusion

Regarding non-quantitative observations about the portfolio, qualitatively these are some of the

biggest names in their respective markets today. It also appears to be a diverse portfolio with

some CPG items as well as services and a gas company, Chevron (Bergin & Pyun, 2016). A

diverse portfolio is what you want to have in case one of the industries were to fail. While the

portfolio looks good based on my analysis, I would recommend my friend to keep the portfolio

upon seeking professional advice.

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References

Bergin, P. R., & Pyun, J. H. (2016). International portfolio diversification and multilateral effects

of correlations. Journal of International Money and Finance, 61(1), 52-71. Retrieved

from https://www.sciencedirect.com/science/article/pii/S0261560615002181

CFI. (2024, December 16). Dividend Yield Formula. Retrieved from Corporate Finance

Insititute: https://corporatefinanceinstitute.com/resources/accounting/dividend-yield-

formula/

Jonick, C. (2017). Principles of financial accounting. Georgia: University of North Georgia

Press Dahlonega.