Stocks are financial assets sought after for their yield. The only way to earn serenely on the stock market is to rely on the return provided by this type of investment, and not, as newbies often think, to earn by realizing differences between the purchase price and the sale price. This speculative strategy has a high probability of being a loser in the long run.
Equities: Only Real Performance Counts!
Just focus on performance! Investors distinguish between different types of returns for a particular security. The most important return is obviously the real one, which directly concerns the investor.
Calculation of the effective return of a share
Actual yield is by far the only one you need to worry about. It is calculated very simply, sincesimply divide the amount of dividends received by the cost price of purchasing the stock. It is therefore not a question of taking the day’s price of the action or the 1st of January of the year, it makes no sense. The financial media have to do this as they have not actually invested in the security in question and therefore cannot calculate a real return.
Cas concret : 100 TotalEnergies shares
Example : Matthieu buys 100 TotalEnergies shares. It made the decision to make its purchase on April 3, 2020, following a significant rebound in its share price. Its cost price, including brokerage fees, is 33.78 euros (the stock was quoted at 33.53 euros). He therefore invested the sum of 3,378 euros.
| Years | Dividends received | Total amount for 100 shares | Annual gross real yield |
|---|---|---|---|
| 2020 | €0.68 + €0.66 | €134 | 3.96% |
| 2021 | 4 x €0.66 | €264 | 7.81% |
| 2022 | 3 x €0.66 + €0.69 + €1 | €367 | 10.86% |
Its calculation is therefore simple. For example, for the year 2022, he added up all the dividends he received, i.e. a total of €367 for his 100 shares, which he divided by the total amount invested which is €3,378. The result gives 10.86% for the year 2022. An investment whose gross return far exceeds inflation. This real return is pre-tax, meaning if the shares were held in an ordinary securities account, tax would be payable on such dividends received. In the context of holding shares in a PEA, keeping the PEA open for 5 years, the dividends received will not be subject to tax.
Gross real total return
Going back to the previous example, after a surge in the TotalEnergies share price, Matthieu may decide to part ways with his shares. For example, he wants to withdraw his funds to finance the purchase of his new electric car. Therefore, he discovers that the TotalEnergies share price is now 56 euros. With a cost price of €33.78, he could realize a capital gain of around €22.22 per share, or around €2,200. Brokerage fees will be deducted from this sale transaction. To calculate his gross real total return, Matthieu will then add up all dividends received, as well as his realized capital gain, then divide this total by the committed amount of €3,378. This will give it a total real gross return (before tax) of 87.77% ((2200 + 134 + 264 + 367) / 3378).
The gross yield is the one disseminated by the financial media. It has no real meaning and is a source of errors. Calculating the gross yield of a share is the division of the annual amount of gross dividend paid by the company by the share price. Which is particularly stupid, because the price of the stock keeps changing, while for an investor it will always be the same, that of its cost price. In fact, this gross yield is only to provide an estimate of the yield if you were shopping at the time. Also, disregarding brokerage fees, this yield is overstated. It is also false because it takes account of past dividends, future ones are not always known. Ultimately, this type of calculation shows that the lower the price of a stock, the more profitable it would be for the investor. Which is, to say the least, totally irrational. To limit this bias, some gross returns are calculated from the January 1 price. An arbitrary date, but one must be chosen so that published returns are not entirely ubiquitous.
