Suppose you know that a company's stock currently sells for $63 per share and the required return on the stock is 10.5 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

Addyson Elliott

Business

4 August, 05:45

Suppose you know that a company's stock currently sells for $63 per share and the required return on the stock is 10.5 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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Martha Walls · Answer 1

The answer is "$3.14 ".

This is how we calculate this;

R = Dividend yield + Capital gains yield = 0.105

Dividend yield = Capital gains yield = 0.105 : 2 = 0.0525

D1 = Dividend yield (D₁ / P₀) * Current stock price (P₀) = 0.0525 * 63 = $3.31

D₀=D₁ / 1+g = 3.31 / 1.0525 = $3.14

Thus, the current dividend per share is "$3.14".