Final answer:
The expected dividend yield for Portman's stock today is approximately 10.4%, calculated using the expected future dividends and the required rate of return. However, the current market price of the stock is typically needed for an accurate calculation, and this calculation assumed the stock is currently in equilibrium according to the Dividend Discount Model.
Step-by-step explanation:
To calculate the expected dividend yield for Portman's stock today, first, we need to understand that the dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. Given that Portman Industries just paid a dividend of $2.16 and expects to increase this dividend by 16% next year, the expected dividend in one year will be:
D1 = D0 * (1 + g) = $2.16 * (1 + 0.16) = $2.5056.
To find the expected yield today, we must divide the expected dividend by the current stock price. The current stock price can be derived from the dividend discount model (DDM), which is:
P0 = D1 / (k - g), where P0 is the current stock price, D1 is the expected dividend next year, k is the required rate of return, and g is the long-term growth rate. Substituting the given values, we get:
P0 = $2.5056 / (0.136 - 0.032) = $2.5056 / 0.104 = $24.0875.
The dividend yield would therefore be:
Dividend Yield = D1 / P0 = $2.5056 / $24.0875 ≈ 0.104 or 10.4%.
However, typically, the market price of the stock should be provided to calculate the current dividend yield. Since it is not given in this question, the above calculation assumed that the stock is in equilibrium based on the Gordon Growth Model (also called the Dividend Discount Model).