Question

Suppose you know that a company's stock currently sells for $66.30 per share and the required return on the stock is 12 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? (do not round intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.) dividend per share $

Answer 1

The dividend per share will be calculated as under -

Given, 12 % of return is evenly divided between capital gain and dividend yield i.e. 6 % for each of them.

Now,

Holding period return = (Dividend ( 1 + dividend yield) / Current price) + Capital gain

12 % = Dividend ( 1 + 0.06) / 66.30 + 6 %

6% = Dividend ( 1.06) / 66.30

Dividend = 66.30 X 6% / 1.06

Dividend = $ 3.753 or $ 3.73