Review the Price-Dividend Ratio

The price-dividend ratio is a total that indicates what you would have to spend to receive $1 in dividend payments. For instance, you might read that the price-dividend ratio for a stock is $100. This might be for a stock that is trading at $10 with a 10-cent dividend paid per share. This is a simple measurement that can be used by reviewing the dividends being paid out. You can even get an idea of how many shares you need by using this equation:

1. Analyze the current dividends being paid out at a time.
2. Divide that total by 1.
3. This gives you the number of shares you should buy to get $1 in dividends.
4. Multiply that number by the current value of the stock to get the precise amount you must spend to earn that dollar.

This is a useful total, but it works best when you compare that value with the stock. Look at how the stock is moving forward versus the dividends. Check the history of the dividends with the stock’s price changes to see if there is a consistent movement between the two. The dividends should be going up along with the stock at this point; any dividend stock where the dividends don’t actually grow with the stock might not be worthwhile.

In addition, you would have to calculate your dividend purchase at this point to see what you can find out about the investment. You might have plans to get 100 shares of stock, but maybe you might have to increase that total depending on the number of people who are investing in that stock.