Price to dividend ratio is used to analyze a company's potential as an investment and to compare performance among companies in the same industry. This PDR is the ratio of the current price of a share of a company's stock to its most recent annual dividends per share. With tens of thousands of stocks, it would be nearly impossible for an investor to manually scan all of them to find the ones that met his investment criteria. Accordingly, most investors use scanning or screening computer software programs and online tools to efficiently screen for stocks in line with their investment and financial criteria.
Most stock screens don't screen stocks by their PDR, but they provide screening criteria such as current stock price, annual dividends per share and dividend yield percentage. However, you can derive a stock's PDR by either dividing its current stock price by its annual dividends per share or by calculating the mathematical reciprocal of its dividend yield percentage.
Visit a website that provides an online screener (see Resources section) and follow the instructions there. For instance, to use the Google Finance Stock Screener, select "Stock screener" from the left column on your screen. Yahoo Finance, FINVIZ.com and CNBC also offer free screeners. A variety of stock screener computer programs, such as the Morningstar Premium Stock Screener, is available for purchase.
Set the program to screen stocks by current stock price ("Last price"), annual dividends paid out per share in the most recent full year ("Div per share (Recent yr)" and dividend yield percentage ("Div yield %"). Continuing with the Google Finance screener as an example, click on "Add Category." From the "Price" menu, select "Last price." From the "Dividends" menu, select "Div per share (Recent yr)" and "Div yield (%)."
Set the program to screen stocks for any of the other listed investment or financial criteria, based on your investment needs and preferences.
Narrow the parameters of your stock screen by setting minimum and maximum amounts for each of your designated criteria, where applicable. For example, you can set your stock screen to return only stocks that have a "Last price" between $75 and $110.
View your results. For each stock in your results, you can compute the stock's PDR by dividing the stock's "Last price" by its "Div per share (Recent yr)." For example, if Company C trades at $100 per share and paid out an annual dividend per share of $5, Company C has a PDR of 20 ($100/$5 = 20). A PDR of 20 means that a investor has to pay $20 to receive $1 of dividends a year from Company C.
Alternatively, find the PDR using only the stock's "Div yield (%)" by calculating its mathematical reciprocal. To do this, convert the dividend yield percentage into a decimal by dividing the percentage by 100. Then divide 1 by that decimal amount. For example, if Company C's dividend yield is 5 percent, convert 5 percent into a decimal (5/100 = .05) and then divide 1 by .05 to get a PDR of 20.
Items you will need
- Do not make investment decisions based on only a company's price to dividends ratio. Like all financial ratios, this is just one of many value indicators and should never be interpreted in isolation.
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