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9-10 The Securities Market [CH 9

this list are such well‑known firms as Eli Lilly, Travelers Corporation, American
Express, J.P. Morgan Chase, and Exxon/Mobile. Both the Bank of New York Mellon
and the BankBoston have paid annual dividends for over 200 years!
The income received from securities is called the investor's return, or yield. Yield
yield
Income received from is calculated by dividing dividends by market price. It is expressed as a percentage.
securities; calculated by Assume that a potential investor plans to purchase $2,000 in stocks. They are
dividing dividends by interested in three companies: entertainment giant Disney, selling at $68 with a $.40
market price. annual dividend; General Electric, which pays a $1.64 annual dividend and can be

purchased for about $45 per share; and the New York utility company Commonwealth
Edison, with an annual dividend of $3 and a recent price of $33.
To facilitate their decision, they shall calculate the anticipate yield per share on
their investment. The yield equation is:

Annual Dividend per share
Yield % = ——————————— x 100%
Stock cost

The yield for Commonwealth Edison is:
$3
Yield % = —— x 100% = 9.1%
$33
Using the equation for finding the yield, we see that for Disney the yield is only 0.6

percent; for General Electric, 3.6 percent; and the Commonwealth Edison yield is 9.1
percent. For an investor seeking immediate income from securities, a utilities stock
such as Commonwealth Edison may be appropriate.
The yield from any particular security varies with the market price and the dividend

payments. Should General Electric's board of directors’ vote to increase the annual
dividend to $1.80, the yield would rise to four percent for an investor who purchased
the stock at $45. Also, if the market price of Commonwealth Edison rises to $50 and
the dividend remains the same, the yield for a prospective investor will be 6 percent

rather than 9.1 percent. Thus, even though the $3 dividend remains the same, the yield
changes.
Safety. In many cases, investors are unwilling to risk the potential reverses of
common stock. Neither their blood pressure nor their bank account is able to endure

fluctuations such as those that occurred in recent years. For example, in a 12‑month
period in 2017 and 2018, Archer Daniels Midland stock prices fluctuated from 41 to
54, Philip Morris from 65 to 908, Albertsons from 27 to 35, and Tyson Foods from 64
to 84. Investors whose primary objective is safety for their original investments are

likely to purchase high-quality bonds and preferred stocks. These securities offer
substantial protection and are likely to continue paying a good return on the
investment.
Most investors have more than one investment goal. Investors who emphasize

safety of principal may buy preferred stocks, which can grow in market value. Those
who buy growth stocks may choose stocks paying at least a three percent yield in order
to receive some short‑term return on the investment. Table 9.2 provides a useful guide
for evaluating stocks and bonds in terms of the three investment objectives.

Regardless of their investment goals, individual investors are most likely to own
AT&T, General Motors, IBM, or Microsoft. The five companies most widely held by
institutional investors such as mutual funds are IBM, Ford, Digital Equipment, General
Electric, and Philip Morris.

Even though AT&T continues to have the largest number of stockholders of any
corporation in the United States, for decades, its steady earnings growth and
predictable dividends have attracted investors. To indicate how widely dispersed
AT&T's ownership is, consider its postage bill for simply mailing dividend checks four

times a year to the 2.8 million stockholders. Assuming that AT&T qualifies for the
special first-class presort rate of $0.46 per letter, the calculation is as follows:
Approximately 2.8 Four quarterly
x $0.46 postage x = $5.15 million
million stockholders dividend payments

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