Since current yield of SPY is 1.69% and current price of 1-share of SPY is $154.75, the yearly dividend this 1-share will pay is $2.62. $154.75 * 1.69% = $2.62. You can calculate this with me (to double check).
Now, lets go back to 1994 and from Yahoo historical quotes section I see that on 1/1/1994 the closing price of SPY was at $46.59. Lets say you bought 1-share of SPY at that time at $46.59. The price of that 1-share has increased to 154.75 today and this 1-share gives you $2.62 in dividends.
Here is a good question. What is your yield today?
You say, what do you mean? The yield of SPY is 1.69% today and it is my yield.
Yes, the current yield of SPY is 1.69% but it is based on its current price. But, since you purchased the SPY at $46.59 and you are getting $2.62 in dividend based on your cost-basis of $46.59; you current yield is 5.62%.
($2.62 / $46.59) * 100 = 5.62
Yes, your current yield is 5.62%. (You can double-check my calculations)
Now tell me how nice is this. Your 1994 investment in a plain-vanilla index ETF is paying you about the same as 10-year treasury . Actually, it pays a few basis points better than the 10-year treasury. If you are a long-term investor and want to hold onto your investment during rocky market condition, this type of thinking makes it easy for you to hold onto your investments.
In the table below, I have calculated the yield of the hypothetical investment made on the first day of every year since 1994. (You can double-check my calculations).
| Date | SPY Price | Current Dividend Based on the purchase price |
| 7/17/2007 | $154.75 | 1.69% |
| 1/1/2007 | $140.46 | 1.87% |
| 1/1/2006 | $124.51 | 2.10% |
| 1/1/2005 | $120.87 | 2.17% |
| 1/1/2004 | $111.28 | 2.35% |
| 1/1/2003 | $ 88.23 | 2.97% |
| 1/1/2002 | $114.30 | 2.29% |
| 1/1/2001 | $131.19 | 2.00% |
| 1/1/2000 | $146.88 | 1.78% |
| 1/1/1999 | $123.31 | 2.12% |
| 1/1/1998 | $ 97.06 | 2.70% |
| 1/1/1997 | $ 73.84 | 3.55% |
| 1/1/1996 | $ 61.48 | 4.26% |
| 1/1/1995 | $ 45.56 | 5.75% |
| 1/1/1994 | $ 46.59 | 5.62% |
1 comment:
Is it based on the price you paid or the current price? Because you could sell the holdings at today's price and buy GNMAs which would yield more on the current account balance.
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