Total Return Index – Datatype (RI)

The Return Index shows the growth in value of a security over a specified period, assuming that dividends are re-invested to purchase additional shares of the security at the closing price (P) on the dividend ex-date.

For all markets except Canada and the US, dividend payment data (DDE) is only available from 1988, for securities listed before this point the return index is calculated using the dividend yield (DY). This method adds an increment of 1/260th part of the dividend yield to the price each weekday. There are assumed to be 260 weekdays in a year, market holidays are ignored.

Method 1 (using annualised dividend yield)

RI on the BDATE =100, then:

Where:

= return index on day t

= return index on previous day

= price index on day t

= price index on previous day

= dividend yield % on day t

N = number of working days in the year (taken to be 260)

For securities listed before 1988 the RI calculation switches from the dividend yield method to using the dividend payment data, for example the first recorded dividend for BP is 15/08/88 – on this date the RI calculation switches from the dividend yield method to using the dividend payment data. This method represents a more accurate measure of the security’s growth in which the discrete quantity of dividend paid is added to the price on the ex-date of the payment

Method 2 (using dividend payment data)

RI on the BDATE =100, then:

except when t = ex-date of the dividend payment D_t then:

Where:

= price on ex-date

= price on previous day

= dividend payment associated with ex-date t

The calculation ignores tax and re-investment charges.

Canadian and US securities are not affected by the dual calculation method, dividend payment data is available from 1973 – the Datastream market inception date for both markets.

Securities listed after 1988 automatically use RI calculation method 2, dividend payment data.

Adjusted closing prices are used throughout to determine price index and hence return index.

Note: where the dividend payment data history contains a mixture of gross and net dividends the annualised dividend yield (method 1 above) is used in order to achieve a consistent growth measure. The net and gross markers can be identified using the datatype DTAX (tax marker). To display the total return using the dividend payment data (method 2) in these cases, the alternative total return datatype RZ (Return Index - As Paid) may be used. RZ uses the dividend payment data calculation method irrespective of the tax markers.

For UK companies the RI includes a tax credit on the dividend until it was abolished in April 2004. Prior to that time dividends as announced by the company are grossed up to include to the credit in the RI calculation. The rate used varies over time, the last rate being 10% in the period April 1999 to April 2004. To see a return index measure which does not include tax credits, the datatype RN (Return Index – Net) should be used. The RN calculation is the same as RI except the dividends used are as announced by the company and not grossed up for the tax credits. It follows that since April 2004 the performance of RI and RN for UK securities is the same. RN is available for UK securities only.