Question

A stock currently sells for $79. The dividend yield is 3.6 percent and the dividend growth rate is 4.9 percent. What is the amount of the dividend to be paid in one year?

Answer 1

Step 1: Calculation of Current Dividend Amount

We know that Dividend Yield =( Current Dividend / Market price)*100

Given Dividend Yield = 3.6%

Market Price = $ 79

3.6 = (Current Dividend / $ 79 )*100

3.6/100 = Current Dividend /$ 79

0.036 = Current Dividend / $ 79

$2.844 = Current Dividend

Hence Current Dividend amount is $ 2.844

Step 2: Calculation of Dividend to be paid in one year

Dividend amount to be paid in next year = Current year dividend + Growth rate* Current year dividend

Dividend Growth rate is 4.9%

Hence the Next year dividend = $ 2.844 + $ 2.844*4.9%

= $ 2.844+ $ 0.139356

=$2.9833

Hence the Dividend amount to be paid in one year is $ 2.9833

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