Question

Suppose you know that a company’s stock currently sells for $66.50 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between capital gains yield and 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

$2.86

Step-by-step explanation:

The computation of current dividend per share is shown below:-

Dividend yield = 9% × 2

= 4.5%

Current price = Company stock × Dividend yield

= $66.50 × 4.5%

= 2.9925

Current dividend per share = Current price ÷ (1 + Dividend yield percentage)

= 2.9925 ÷ (1 + 0.045)

= 2.9925 ÷ 1.045

= $2.86

So, for computing the current dividend per share we simply applied the above formula.