Question

CDB stock is currently priced at $77. The company will pay a dividend of $5.37 next year and investors require a return of 11.8 percent on similar stocks. What is the dividend growth rate on this stock

Answer 1

Answer:

4.82%

Explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

77 = 5.37 / (0.118 - g)

77(0.118 - g)  =5.37

(0.118 - g) = 5.37 / 77

(0.118 - g) = 0.069740

g = 0.118 - 0.069740

g = 0.04826

g = 4.82%