Question

The shares of the Dyer Drilling Co. sell for $50. The firm has a P/E ratio...

The shares of the Dyer Drilling Co. sell for $50. The firm has a P/E ratio of 25. Fifty percent of earnings is paid out in dividends.

What is the firm’s dividend yield? (Do not round your intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

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Answer #1

- P/E ratio = Market price per share/Earnings per share

25 = $50/Earnings per share

Earnings per share = $2

- Fifty percent of earnings is paid out in dividends which means that Dividend payout ratio is 50%

Annual Dividend = Earnings per share*Dividend payout ratio

Annual Dividend = $2*50%

Annual Dividend = $1

- calculating the firm’s dividend yield:-

Dividend Yield = Annual Dividend/ Market price per share

Dividend Yield = $1/$50

Dividend Yield = 2.00%

SO, the firm’s dividend yield is 2.00%

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