Question

suppose you know that a company's stock currently sells for $59 per share and the required return on the stock is 11 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?

Answer 1

The current dividend per share can be found using the formula Dividend per share = Stock Price * Dividend Yield.

Step-by-step explanation:

To find the current dividend per share, we need to determine the amount of the dividend yield. The total return on the stock is evenly divided between the capital gains yield and the dividend yield. Since the required return on the stock is 11 percent and the capital gains yield is equal to the dividend yield, we can assume that each yields 5.5 percent.

We can use the formula: Dividend per share = Stock Price * Dividend Yield.

If the stock price is $59, the dividend per share would be: $59 * 0.055 = $3.25.

Therefore, the current dividend per share is $3.25.