Assume a corporation has just paid a dividend of $ 2.13 per share. The dividend is...
Assume a corporation has just paid a dividend of $ 2.13 per share. The dividend is expected to grow at a rate of 2.4% per year forever, and the discount rate is 8.1%. What is the dividend yield of this stock?
Homework Answers
Share price=(Dividend next year)/(Required return-Growth
rate)
Dividend next year=(Dividend just paid)*(1+growth rate)
Dividend just paid=$2.13
Growth rate=2.4%
Required return or the discount rate=8.1%
Share price=$2.13*(1+2.4%)/(8.1%-2.4%)
=$2.13*(1.024)/(0.057)
=$2.18112/0.057
=$38.26526316
Dividend yield=Annual dividend/Current share price
Now, the annual dividend is $2.13 and the current share
price=$38.26526316
Dividend
yield=$2.13/$38.26526316=0.055664062 or 5.57%
(Rounded to two decimal places)
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