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READING THE STOCK MARKET LISTINGS

When you read the stock market pages in the newspaper, you are looking at the secondary market. Figure 3.11 is an excerpt from The Wall Street Journal of NYSE trading on February 25, 2000. The highlighted bar in the figure highlights the listing for

PepsiCo.2 The two numbers to the left of PepsiCo are the highest and lowest prices at which the stock has traded in the last 52 weeks, $411БІАБАД2 and $301БІАБАД8, respectively. That s a reminder of just how much stock prices fluctuate.

Skip to the four columns on the right, and you will see the prices at which the stock traded on February 25. The highest price at which the stock traded that day was $343БІАБАД8 per share; the lowest was $333БІАБАД16, and the closing price was $34, which was 3БІАБАД16 dollar lower than the previous day s close.

The .54 value to the right of PepsiCo is the annual dividend per share paid by the company.3 In other words, investors in PepsiCo shares currently receive an annual income of $.54 on each share. Of course PepsiCo is not bound to keep that level of dividend in the future. You hope earnings and dividends will rise, but it s possible that profits will slump and PepsiCo will cut its dividend.

The dividend yield tells you how much dividend income you receive for each $100 that you invest in the stock. For PepsiCo, the yield is $.54/$34 = .016, or 1.6 percent. Therefore, for every $100 invested in the stock, you would receive annual dividend income of $1.60. The dividend yield on the stock is like the current yield on a bond. Both look at the current income as a percentage of price. Both ignore prospective capital gains or losses and therefore do not correspond to total rates of return.

If you scan Figure 3.11, you will see that dividend yields vary widely across companies. While People s Energy has a relatively high 7.0 percent yield, at the other extreme, Perot Systems doesn t even pay a dividend and therefore has zero yield. Investors are content with a low or zero current yield as long as they can look to higher future dividends and rising share prices.

The price-earnings (P/E) multiple for Pepsi is reported as 25. This is the ratio of the share price to earnings per share. The P/E ratio is a key tool of stock market analysts. For example, low P/E stocks are sometimes touted as good buys for investors. We will have more to say about P/E later in this material.

The column headed Vol 100s shows that the trading volume in PepsiCo was 35,998 round lots. Each round lot is 100 shares, so 3,599,800 shares of PepsiCo traded on this day. A trade of less than 100 shares is an odd lot.

DIVIDEND Periodic cash distribution from the firm to its shareholders.

PRICE-EARNINGS (P/E) MULTIPLE Ratio of stock price to earnings per share.

2 The table shows not only the company s name, usually abbreviated, but also the symbol, or ticker, which is used to identify the company on the NYSE price screens. The symbol for PepsiCo is PEP ; other companies symbols are not at first glance so obvious.