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24 July, 02:02

Over the past 5 years, DL Insulation has paid annual dividends of $1.40, $1.55, $1.70, $1.73, and $1.77 per share. What is the geometric average dividend growth rate for this period?

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  1. 24 July, 05:10
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    The average dividend growth rate is 6.04%

    Explanation:

    Given;

    annual dividends = $1.40, $1.55, $1.70, $1.73, $1.77

    Using the growth divided formula given as;

    Gi = (Di / Di-1) - 1 * 100

    where Gi is the average dividend

    Di is the initial dividend

    Substituting, we have

    G1 = (1.55/1.4) - 1 * 100 = 10.71%

    G2 = (1.70/1.55) - 1 * 100 = 9.68%

    G3 = (1.73/1.70 - 1 * 100 = 1.76%

    G4 = (1.77/1.73) - 1 * 100 = 2.31

    Average growth rate = (G1 + G2 + G3 + G4) / 4

    = 6.1%

    For a compounded growth rate, we use the formula

    Dividend Growth Rate Formula = [ (Df / Di) ¹/ⁿ - 1] * 100%

    where Df is the final dividend and Di is the initial dividend

    Substituting, we have

    Compounded growth rate = [ (1.77 / 1.40) ¹/⁴ - 1] * 100%

    = (1.264¹/⁴ - 1) * 100

    =1.06038 - 1 * 100

    =0.06038 * 100

    = 6.04%
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