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If D1 = $2.00, g = 6%, and P0 = $40, what is the stock’s expected...

If D1 = $2.00, g = 6%, and P0 = $40, what is the stock’s expected dividend yield for the coming year?

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Answer #1

P0 = $ 40

D1 = $ 2.00  

Please note D1 is the dividend for upcoming year which means it has already grown by 6 % to its previous annual dividend. Hence, there is no need to incorporate growth anymore here.

Expected Dividend Yield = $ 2 / $ 40

= 0.05

= 5 %

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