Question

Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of its earnings as dividends, its dividend growth rate will be:_______
a. 4.5%
b. 10.5%
c. 15%
d. 30%

Answer 1

The dividend growth is 10.5%.

Given ROE of 15% and dividend of 30%.

Dividend growth rate is to be computed.

The dividend growth rate is the annualized percentage rate of growth of a specific stock's dividend over time. Many established organizations strive to raise dividends given to shareholders on a regular basis. When utilizing a dividend discount model to value equities, the dividend growth rate must be calculated.

A track record of substantial dividend growth may indicate that future dividend increase is expected, which can indicate long-term profitability.

The formula to compute the dividend growth rate (DGR) is given below:

DGR = ROE×(1-payout ratio)

Substitute values in the formula given above to find the DGR.

DGR = 15%×(1-30%)

        =15% × 0.70

        =0.105 or 10.5%

Dividend payout ratio "DGR" = 10.50%

Therefore, the dividend payout ratio is c. 10.50%

To know more about dividend payout ratio click here:

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