I got this question repeatedly yesterday after my story about OceanaGold PH’s [OGP 14.90, down 4.2%; 817% avgVol] Q3 dividend. In that story, I said OGP declared a P0.81/share dividend, which represented (at the pre-announcement price of P15.50/share) an annualized yield of 20.9%. Many readers were confused since the regular equation to calculate yield (dividend divided by share price) would only be 5.2% in this case. That is true. For that one dividend, a buyer at P15.50 could expect a yield of 5.2%. But that’s not what I’m talking about when I’m talking about annualized yields. I’m trying to think of the OGP income stream as an ongoing thing (something that will generate dividends every quarter), and I’m trying to come up with ways to compare the income that OGP generates to the income that other dividend companies like Semirara [SCC 31.95, down 0.8%; 68% avgVol] or AREIT [AREIT 39.70, down 0.1%; 178% avgVol] generate. The best way to do this is to take the most recent quarterly dividend and multiply that by four to say--in essence--”this is what OGP’s annual yield would be, at this market price, if it did exactly this level of dividend for this and the next three quarters”. That’s what it means to “annualize” a dividend. It’s not exact. It’s just a predictive tool that we can use to make a more “apples-to-apples” comparison between different income streams.
MB bottom-line: For long-term investors, the real yield that matters is the one relative to your purchase price. If you bought OGP at its offer price of P13.33/share, then this dividend had an annualized yield of 24.3% for you. I like to compute the annualized yield based on the current market price because investors can use this (as one tool) to identify “deals” if they’re in the market to buy dividend-generating stocks, and it can help me identify opportunities to add to any of my holdings.
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