Question

A stock just paid an annual dividend of $9.53 per share. The expected growth rate of the dividend is 5.38%. The required rate of return for the stock is 8.88% per annum. Based on the Constant Dividend Growth Model, what is the expected dividend yield for the stock for the coming year? Answer as a percentage, 2 decimal places (e.g., 12.34% as 12.34).

Answer #1

Last dividend | $ 9.53 | ||

Rate of return | 8.88% | ||

Growth Rate | 5.38% | ||

Share price today | =last dividend *(1+Growth rate)/(Rate of return-Growth Rate) | ||

Share price today | =9.53*(1+0.0538)/(0.0888-0.0538) | ||

Share price today | $ 286.93 | ||

Next dividend= | 9.53*(1+5.38%) | ||

Next dividend= | $ 10.04 | ||

Dividend yield= | 10.04/286.93 | ||

Dividend yield= | 3.50% |

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