Question

Seaside Corp pays out 35% of its earnings (EAC) as common stock dividends. The firm has...

Seaside Corp pays out 35% of its earnings (EAC) as common stock dividends. The firm has $1.2 M in net profit after taxes and pays $450,000 in preferred dividends. The firm has 400,000 shares of common stock outstanding. The market price per share is $24.54. What is the dividend yield? Please show all work!

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Answer #1

Given the firm has $1.2 Million dollars in net earnings. Dividend payout ratio on per share basis can be calculated using the formula, Dividend payout ratio=(Dividends per share/earnings per share). Here Dividends per share is the dividends paid out to each common share and earnings per share is calculated by dividing Net income available to common shareholders divided by number of common ahares outstanding. So, Earnings per share= ((1200000-450000)/400000)= 750000/400000= 1.875. So, on substituting in Dividend payout ratio formula, we get 35%= Dividends per share/1.875. Which gives 0.656. So, dividend yield = Dividends per share/ Price per share= 0.656/24.54= 2.67%

So, Dividend yield is 2.67%.

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