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Tell Me Why Co. is expected to maintain a constant 6.4 percent growth rate in its...

Tell Me Why Co. is expected to maintain a constant 6.4 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 8.2 percent, what is the required return on the company’s stock?

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Answer #1
Required return on company's stock is the sum of dividend yield and dividend growth rate.
Required return on the company's stock = Dividend growth rate + Dividend Yield
= 6.4% + 8.2%
= 14.60%
Alternatively:
Suppose current Price of share is $ 100
Next Year dividend = Current Price*Dividend Yield
= 100*8.2%
= $       8.20
Required Return on stock = (D1/P0)+g Where,
= (8.20/100)+0.064 D1 $       8.20
= 14.60% P0 $ 100.00
g 6.40%
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