Question

You are considering the purchase of Sanders Corp. a constant growth stock. The stock paid a recent dividend of $3.00. The next dividend is expected to be $3.18. If the stock is returning 15%, calculate its dividend yield

Answer 1

The dividend yield of Sanders Corp. stock is approximately 14.20%.

Step-by-step explanation:

The dividend yield of a stock is calculated by dividing the annual dividend per share by the current market price of the stock. In this case, the recent dividend paid by Sanders Corp. is $3.00 and the next expected dividend is $3.18. The dividend yield can be calculated as follows:

Dividend Yield = (Next dividend / Stock price) * 100%

Assuming a constant growth rate, we can use the dividend discount model (DDM) to estimate the stock price:

Dividend Yield = (Expected Dividend / Stock price) * 100%

15% = (3.18 / Stock price) * 100%

Stock price = 3.18 / (15/100) = $21.20

Therefore, the dividend yield of Sanders Corp. stock is approximately 14.20%.