Suppose you know that a company’s stock currently sells for $64 per share and th

Question

Suppose you know that a company’s stock currently sells for $64 per share and the required return on the stock is 14 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? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Suppose you know that a company’s stock currently sells for $64 per share and the required return on the stock is 14 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? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Formula : Stock Price = D0 ( 1 + g) / R - g

=> D0 ( 1 + 0.07) / 0.14 - 0.07 = $64

now solving it for D0, we get

Current Dividend = D0 = $4.19 per share

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