Question

A company has stock which costs $ 41.00 per share and pays a dividend of $ 2.30 per share this year. The​ company's cost of equity is 11​%. What is the expected annual growth rate of the​ company's dividends?

Answer 1

5.4%

Step-by-step explanation:

Data provided as per the question

Cost of equity = 11%

Dividend = $2.30

Stock cost = 41.00

The computation of expected annual growth rate is shown below:-

Required rate = Dividend yield + Annual Growth Rate

Dividend ÷ Price + Annual Growth Rate

11% = $2.30 ÷ 41 + Annual Growth Rate

11% = 5.60% + Annual Growth Rate

Annual Growth rate = 11% - 5.60%

= 5.4%