Question

Assume a corporation has just paid a dividend of $ 4.75 per share. The dividend is expected to grow at a rate of 4.3% per year forever, and the discount rate is 8.9%.

What is the dividend yield of this stock?

Answer #1

**The dividend yield is computed as shown
below:**

**= Next Dividend per share / market price per
share**

Market price per share is computed as follows:

**= Dividend just paid (1 + growth rate) / ( discount rate
- growth rate)**

= ($ 4.75 x 1.043) / (0.089 - 0.043)

= $ 4.95425 / 0.046

**= $ 107.701087**

Next dividend per share is computed as follows:

**= Current dividend (1 + growth rate)**

= $ 4.75 x 1.043

**= $ 4.95425**

**So, the dividend yield is computed as
follows:**

= $ 4.95425 / $ 107.701087

**= 4.6%**

Feel free to ask in case of any query relating to this question

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