Question

Shares of common stock of the Samson Co. offer an expected total return of 12.8 percent. The dividend is increasing at a constant 5.1 percent per year. The dividend yield must be:

7.70 percent.
5.10 percent.
12.80 percent.
2.51 percent.
17.90 percent.

Answer 1

A. 7.70 percent.

Step-by-step explanation:

Generally, dividend yield is the annual dividend per share divided by the stock price per share. However, in finance, dividend yield is the difference between the expected total return and dividend growth rate per year.

Therefore, Dividend yield = Expected total return - Dividend growth rate (Increasing)

Dividend yield = 12.8% - 5.1%

Hence, Dividend yield = 7.70%

Therefore, option A is the answer.