Question

Suppose you know that a company’s stock currently sells for $56 per share and the required return on the stock is 10 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?

Answer 1

Answer:

$2.8 divdends per share

Explanation:

$56 market price

Rate of return 10%

The gain for an investment in stocks is:

$\frac{DividendsYield+SharePriceVariation}{Investment} = Return on Investemnt$

In this case we are told that this is distribute evenly, this means:

dividends paid = market price gain

So dividends yield 5% and market price yields another 5% to achieve the 10%

So currently $56 market price x 0.05% = $2.8 divdends per share