Secolo Corporation stock currently sells for $51 per share. The market requires

Question

Secolo Corporation stock currently sells for $51 per share. The market requires a return of 8.2 percent on the firm’s stock. If the company maintains a constant 2.1 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

Secolo Corporation stock currently sells for $51 per share. The market requires a return of 8.2 percent on the firm’s stock. If the company maintains a constant 2.1 percent growth rate in dividends, what was the most recent dividend per share paid on the stock?

Explanation / Answer

Current price (p0) = 51

Discount rate = 8.2% ; growth rate = 2.1 %

P0 = D1/(r-g)

Or D1 = p0 * (r-g)

Or D1 = 51 * (8.2% -2.1%) = $3.11

D1 = D0 * (1+g)

Or D0 = 3.11/(1+2.1%)

Or D0 = $3.05 i.e. the most recent dividend per share

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