Question

1. Rocket Services common stock offers an expected total return of 11.53 percent. The last annual dividend was $2.27 a share. Dividends increase at a constant 1.90 percent per year. What is the dividend yield? (show work)

1. 13.43%
2. 9.63%
3. 1.90%
4. 44.05%

Answer 1

Dividend Yield = Annual Dividend / Current Stock Price
As per Gordan's Model, Current Stock Price will be:
Po (Current Stock Price) = (Last Year Dividend(1+Growth Rate))/(Expected Return-Growth Rate)
=(2.27(1+0.0190))/(11.53%-1.90%)
$ 24.02
Dividend Yield = Annual Dividend / Current Stock Price
=(2.27(1+0.0190))/24.02
9.63%
Answer would be Option B