CDB stock is currently priced at $69. The company will pay a dividend of $5.05 next year and investors require a return of 11.4 percent on similar stocks. What is the dividend growth rate on this stock

4%

Explanation:

The dividend growth rate is the percentage rate of growth that a stock's dividend experiences over a period of time. The dividend discount model is based on an assumption that a stock is worth the sum of its future payments to shareholders, discounted back to the present day. It is calculated using the formula P = D1 / (r - g) where P is the stock price, D1 is the dividend to be paid out the following year, r is the shareholders required return and g is the dividend growth rate. We can rearrange the formula to get g = r - D1/P

therefore g = 11.4% - $5.05/$69 = 0.04 = 4%