Part 3/8:
- Dividend Yield: This is a percentage representing the annual dividend income relative to the stock's price, calculated as:
[ \text{Dividend Yield} = \frac{\text{Annual Dividends Per Share}}{\text{Stock Price}} \times 100 ]
For instance, a stock priced at $100 with a $5 dividend would result in a yield of 5%.
- Investment Strategy: Determining how much capital you need to invest is crucial for achieving your income goals. If you aim for $1,000 a month, you need to ensure your investments can produce an annual dividend of $12,000.
If your target stock has a yield of 4%, you will need to invest:
[ \text{Required Investment} = \frac{\text{Target Annual Income}}{\text{Dividend Yield}} = \frac{12,000}{0.04} = 300,000. ]