Question

Josh purchased 100 shares of XOM at the beginning of 2016. He received dividends per share of​ $1.37 (2016),​ $1.55 (2017),​ $1.66 (2018),​ $1.74 (2019),​ $1.85 (2020). At the end of​ 2020, just after receiving the last​ dividend, he sold the stock for​ $84.76. At what rate did the dividends grow from the end of 2016 to the end of​ 2020? Assume that all dividends were received at the end of the year.

A.

​35%

B.

​13.1%

C.

​6.2%

D.

​7.8%

Answer 1

Dividend received in year end 2016 = $1.37

Dividend received in year end 2020 = $1.85

No of years from the end of 2016 to the end of​ 2020(n) = 4 years

Calculating the Annual Dividend Growth rate from the end of 2016 to the end of​ 2020:-

Dividend Growth Rate = (Dividend received in year end 2020/Dividend received in year end 2016)^(1/n) - 1

Dividend Growth Rate =(1.85/1.37)^(1/4) - 1

Dividend Growth Rate = 1.077985 - 1

Dividend Growth Rate = 7.80%

So, the dividends grow from the end of 2016 to the end of​ 2020 is 7.80%

Option D

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