Quantitative Analysis of Portfolio

Abstract

In this paper we are going to review the portfolio position, calculate the estimated yields for each stock and overall dividend income. After that we are going to determine the weighted average factor and weighted average.

We will explain how all these are being calculated, explain the difference between yield that is based on cost and yield on current market price and finally I will make some observations and recommendations.

 

Keywords: weighted average, yield

 

 

 

 

 

 

 

 

 

First let us quickly find out total portfolio value we know the number of stocks and price of each stock, we can multiple number of stocks with price of each stock and then sum up –

Type of Investment Company Name Stock Symbol Portfolio Position (# of shares) Current Market Price Current Market Value
Common stock Altria MO 119 50.20 5,973.80
Common stock AT&T T 173 32.65 5,648.45
Common stock Chevron CVX 26 104.98 2,729.48
Common stock Coca Cola KO 59 40.55 2,392.45
Common stock Duke Energy DUK 65 76.78 4,990.70
Common stock Johnson & Johnson JNJ 31 100.60 3,118.60
Common stock McDonalds MCD 52 97.44 5,066.88
Common stock Pepsi Cola PEP 17 95.62 1,625.54
Common stock Philip Morris Intl PM 70 75.33 5,273.10
Common stock Proctor & Gamble PG 52 81.94 4,260.88
           
        Total Portfolio Market Value 41,079.88

 

First we need to multiply number of stocks with portfolio position or number of stocks. Then I added current market value of each company name to get total portfolio value.

 

Calculate individual yields

 

Now we know Current market value of each company in the portfolio and we know estimated dividend income from each company. So for example dividend yield for Altria would be –

Estimated Dividend / Current Market Value = 247/5973.80*100 = 4.13%

And I applied the same method to calculate estimated current yield for each company we have in the portfolio.

Company Name Stock Symbol Portfolio Position (# of shares) Current Market Price Current Market Value Estimated Dividend/Interest Estimated Current Yield
Altria MO 119 50.20 5,973.80 $247.00 4.13%
AT&T T 173 32.65 5,648.45 $325.00 5.75%
Chevron CVX 26 104.98 2,729.48 $111.00 4.07%
Coca Cola KO 59 40.55 2,392.45 $77.00 3.22%
Duke Energy DUK 65 76.78 4,990.70 $206.00 4.13%
Johnson & Johnson JNJ 31 100.60 3,118.60 $86.00 2.76%
McDonalds MCD 52 97.44 5,066.88 $176.00 3.47%
Pepsi Cola PEP 17 95.62 1,625.54 $44.00 2.71%
Philip Morris Intl PM 70 75.33 5,273.10 $280.00 5.31%
Proctor & Gamble PG 52 81.94 4,260.88 $133.00 3.12%

Weighted average factor and the weighted average yields

 

We determine weighted average factor for each stock by dividing the current market value with total market portfolio value. For example, for Altria or stock symbol MO Current Market Value / Total Market Portfolio Value = 5973.80/41079.88 = .15 and did the same exact thing for each stock to find out the weight then have in portfolio(Weighted Average, n.d.).

Stock Symbol Portfolio Position (# of shares) Current Market Price Current Market Value Estimated Dividend/Interest Estimated Current Yield Weighted Average Factor Weighted Average Yield
MO 119 50.20 5,973.80 $247.00 4.13% 0.15 0.60%
T 173 32.65 5,648.45 $325.00 5.75% 0.14 0.79%
CVX 26 104.98 2,729.48 $111.00 4.07% 0.07 0.27%
KO 59 40.55 2,392.45 $77.00 3.22% 0.06 0.19%
DUK 65 76.78 4,990.70 $206.00 4.13% 0.12 0.50%
JNJ 31 100.60 3,118.60 $86.00 2.76% 0.08 0.21%
MCD  

52

97.44 5,066.88 $176.00 3.47% 0.12 0.43%
PEP 17 95.62 1,625.54 $44.00 2.71% 0.04 0.11%
PM 70 75.33 5,273.10 $280.00 5.31% 0.13 0.68%
PG 52 81.94 4,260.88 $133.00 3.12% 0.10 0.32%
            1.00  
    Total Portfolio Market Value 41,079.88        
            Weighte Averatge Yield: 4.10%

 

To calculate weighted average yield, we just have to calculate weighted average yield for each stock. We already have calculated weighted average factor for each stock, and we have current yield for each stock. I have multiplied estimated current yield with weighted average factor to get weighted average yield for that stock.

The market value of each stock is different in the portfolio and that is why we have to determine the average weight of each stock in the portfolio. And we have estimated yield for each stock, so we just multiply the estimated yield with the average weight factor to get weighted average yield.

Price of stock goes up and down. And yield can vary every day. For example say you purchase just 1 stock of ABC Company for $100. This company pays yearly dividend worth $2, so the dividend yield of the stock would be 2%. This yield is based at cost.

After purchasing the stock, say after 1 month the stock price increased to $120, but that dividend is still $2, so based on current market price the dividend yield would be 1.67%.

Next month the stock price drops to $80, at current market price the yield would be 2.5%. Yield at cost remains same until the stock is sold, because right now the purchase cost is still $100 and the yield is still $2, although the market value is changing and based on changing market value the yield is also changing.

 

 

My observation is my friend has common stocks in portfolio, these are not bonds or preferred stocks, so the dividend payments are not promised, on positive side those can go up but those might go down too, and even stop based on the financial results of company. So my friend should not consider the dividend income from the portfolio as fixed income for life. This income can go up or down in future, while common stocks bear greater risk than bonds or preferred stocks (Common Stock, n.d.). Based on all these observations, my recommendation would be based on my friends age and investment horizon, if he is young, has a regular full time job with minimum to no dependency on this dividend income , then he can stay invested, but if he wants to cash out sooner or have a regular source of income, maybe he should sell some shares, book profit and switch to bonds with regular coupon payouts.

References:

Retrieved on 5/9/2018. Retrieve from http://www.financeformulas.net/Weighted_Average.html

Retrieved on 5/9/2018. Retrieved from https://www.investopedia.com/terms/c/commonstock.asp

 

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