Question

Mitchell, Inc., is expected to maintain a constant 4.6 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 5.8 percent, what is the required return on the company's stock

Answer 1

The required return on the company's stock given the growth rate and the dividend yield is 10.4%.

What is the required return?

The required return is the return that investors demand for investing in a stock. The more risky a stock is, the higher the return demanded by investors.

Required return = dividend yield + growth rate

4.6% + 5.8% = 10.40%