Question

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid a $1.23 annual dividend and announced plans to pay $1.37 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?

Answer 1

Answer:

The required rate of return on this stock is 13.27%

Explanation:

The computation is shown below:

First, we have to determine the dividend growth and then the growth rate. Afterward, the final answer will come

Dividend growth rate = Next year dividend - current year dividend

= $1.37 - $1.23

= $0.14

Now the growth rate would be equal to

= (Dividend growth) ÷ (current year dividend)

= ($0.14) ÷ ($1.23)

= 11.38%

Now add the dividend yield to the growth rate

So, the required rate of return would be

= 11.38% + 1.89%

= 13.27%