The next dividend payment by Halestorm, Inc., will be $1.56 per share. The divid

Question

The next dividend payment by Halestorm, Inc., will be $1.56 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. The stock currently sells for $29 per share.

What is the dividend yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The next dividend payment by Halestorm, Inc., will be $1.56 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. The stock currently sells for $29 per share.

Explanation / Answer

Calculate the dividend yield:

Dividend yield = Annual dividend/Current market price

= $1.56/$29

= 5.38%

Calculate the cost of equity as per dividend discount model:

Cost of equity = D1/P0 + g

= $1.56/$29 + 4%

= 9.37%

Expected price per share after one year (P1) = D2/(r - g)

= D1 (1 + g)/(r - g)

= $ 1.56 (1+0.04)/(0.0937 - 0.04)

= $30.21

Calclate capital gain yield:

Capital gain yield = ($30.21 - $29)/$29

= 4.17%

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