Question

The next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of 4.5 percent forever. The stock currently sells for $37 per share. a. What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the expected capital gains yield? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.)

Answer 1

Dividend yield= 6.37%

Expected capital gains yield= 4.5%

Step-by-step explanation:

The next dividend payment that will be made by Savitz incorporation is $2.34 per share

The dividends are expected to have a growth rate of 4.5 percent forever

The stock is currently being sold for $37 per share

(A) The dividend yield can be calculated as follows

Dividend yield= Dividend per share/Price per share

= $2.34/$37

= 0.0632×100

= 6.32%

Dividend yield= 6.32%

(B) The expected capital gains yield can be defined as the increase in the price of the stock that is being sold. Since the growth rate of the stock is expected to remain at 4.5% forever then, the expected capital gains yield is 4.5%

Hence the dividend yield is 6.32% and the expected capital gains yield is 4.5%