Suppose you know a company\'s stock currently sells for $90 per share and the re

Question

Suppose you know a company's stock currently sells for $90 per share and the required return on the stock is 12 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?

rev: 09_18_2012

$10.19

$5.46

$4.84

$5.09

$5.40

If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

Explanation / Answer

Capital Gain Yield = 12%/2 = 6%

Growth rate = 6%

Dividend Yield = 12%/2 = 6%

current dividend per share = Current Share*Dividend Yield/(1+growth rate)

current dividend per share = 90*6%/(1+6%)

current dividend per share = $ 5.09

Answer

$5.09

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