Suppose you know that a company's stock currently sells for $74 per share and the required return on the stock is 10.6 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

Question

Business

Precious Hays

26 May, 03:15

Suppose you know that a company's stock currently sells for $74 per share and the required return on the stock is 10.6 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

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Answers (1)

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Devan Mays · Answer 1

Current dividend per share = $3.72 (Approx).

Explanation:

Given:

Current stock price = $74

Rate of return = 10.6%

Dividend yield rate = 10.6% / 2 = 5.3% = 0.053

Computation:

Dividend = Current stock price x Dividend yield rate

Dividend = $74 x 0.053

Dividend = $3.922

Current dividend per share = Dividend (1 / 1 + yield rate)

Current dividend per share = $3.922 (1 / 1.053)

Current dividend per share = $3.922 (0.949667616)

Current dividend per share = $3.72459639

Current dividend per share = $3.72 (Approx).