# Determining dividend yield on shares currently owned



## sydboy007 (19 February 2013)

I've got a couple of shares in my SMSF that have had a stellar run over the last couple of months.  They're up between 22.5 and 25%

How long do you usually base your yield on the purchase price?  I've been thinking to rebalance once a year, but to be honest wasn't expecting to have such high levels of capital growth in such a short time.

The good problem to have is that they both still provide 8.5% and 10% forecast yield even after the share price increase.

I've found a couple of potential investments that would provide a higher yield, with far less upside potential, but also probably less downside as well.

Any thoughts from those who've been in the same boat would be greatly appreciated.


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## skc (19 February 2013)

sydboy007 said:


> I've got a couple of shares in my SMSF that have had a stellar run over the last couple of months.  They're up between 22.5 and 25%
> 
> How long do you usually base your yield on the purchase price?  I've been thinking to rebalance once a year, but to be honest wasn't expecting to have such high levels of capital growth in such a short time.
> 
> ...




Yield = return on funds. The yield should be based on realisable value. Your historical cost has nothing to do with the yield when you want to make the hold or switch decision. It does have to do with capital gains tax and that's probably going to drive the economics on whether you should hold or switch (assuming you get your view on the future correct).


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## So_Cynical (19 February 2013)

skc said:


> Yield = return on funds. The yield should be based on realisable value. Your historical cost has nothing to do with the yield when you want to make the hold or switch decision. It does have to do with capital gains tax and that's probably going to drive the economics on whether you should hold or switch (assuming you get your view on the future correct).




CGT is a factor...i always base my yield calculations on the capital invested, understand that that's not how its meant to be done but cant realistically do it any other way as the capital invested will always be the capital invested.

Doing yield based on current value would have to be less CGT for me because i will pay CGT...starts to get a little complex to calculate.


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## skc (20 February 2013)

So_Cynical said:


> CGT is a factor...i always base my yield calculations on the capital invested, understand that that's not how its meant to be done but cant realistically do it any other way as the capital invested will always be the capital invested.
> 
> Doing yield based on current value would have to be less CGT for me because i will pay CGT...starts to get a little complex to calculate.




So there's a choice between a wrong method and a complex but correct method.

It's up to the OP to choose I suppose.

P.S. CGT calculation is not that complex, is it?!


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## burglar (20 February 2013)

skc said:


> ... P.S. CGT calculation is not that complex, is it?!




There is more than one method to calculate CGT.

The simplest way is not that complex!

I never bothered learning the other way,
as I believe there is little to be gained.


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## Ves (20 February 2013)

Whilst comparing current yield as per market is important in some respects when deciding whether to switch out of an investment and into another - I would have thought the actual importance should be placed on the yield of the cashflow stream in future years.   

If I currently own X share with 5% current market yield.

I am looking into Y share which has 7% current market yield.

With sufficient growth in underlying cashflow, it is possible that the yield on X share will be higher than the yield on Y share in future years.  Y share may have no growth prospects whatsoever.

Is the certainty of the current 2% yield spread worth more than the prospect of a higher yield in the future on the currently held investment?

Investing isn't as easy as comparing current and / or past yields in my opinion because both of them do not completely take into account the whole opportunity cost.   

You should also take into consideration costs of switching such as CGT and brokerage as So_Cynical mentioned.


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## sydboy007 (20 February 2013)

Fortunately brokerage costs are minimal for me, and being inside my SMSF the CGT is also relatively minimal, and with the benefit that I wont need to pay the CGT till Feb next year allows the extra money to be fully invested for the best part of a year.

I thought NAB at $29 was getting a bit rich, but at $30.56 it's way above anything I expected, yet forecast 2013 yield is still a respectable 8.6% with franking credits.

The shares could go up above $37 and still offer a pretty good 7.X% yield.

Gotta love the financial repression being forced upon us via the low interest rates.


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