Benzinga - In the wake of last week's extreme volatility for Western Alliance Bancorporation (NYSE: WAL) shares and the subsequent denial of reports claiming the bank was exploring a potential sale, investors may be questioning whether it's a good time to invest in the company for its dividend yield.
With a current dividend yield of 5.46%, significantly higher than the SPDR S&P 500 ETF Trust (ARCA: SPY) 1.66%, Western Alliance could be an attractive option for those seeking dividend income.
To determine how much Western Alliance stock an investor would need to own in order to yield $500 per month in dividends, we can start by calculating the annual dividend income required: $500 x 12 months = $6,000.
Next, divide the amount by the 5.46% dividend yield: $6,000 / 0.0546 = $109,890.
This means that an investor would need to own approximately $109,890 worth of Western Alliance stock, or 4,155 shares, to generate a monthly dividend income of $500.
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Given that Western Alliance's stock is currently down 54% year-to-date, there may be potential for capital appreciation in addition to the dividend income.
For those who find a $109,000 investment too steep, a more modest investment of $21,978 (equivalent to 831 shares) would yield $100 per month in dividends from Western Alliance.
Note that dividend yield can change on a rolling basis as the dividend payment and the stock price both fluctuate over time.
The dividend yield is calculated by dividing the annual dividend payment by the current stock price. As the stock price changes, the dividend yield will also change.
For example, if a stock pays an annual dividend of $2 and its current price is $50, its dividend yield would be 4%. However, if the stock price increases to $60, the dividend yield would decrease to 3.33% ($2/$60).
Conversely, if the stock price decreases to $40, the dividend yield would increase to 5% ($2/$40).
Further, the dividend payment itself can also change over time, which can also impact the dividend yield. If a company increases its dividend payment, the dividend yield will increase even if the stock price remains the same. Similarly, if a company decreases its dividend payment, the dividend yield will decrease.
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