Question

The next dividend payment by Hoffman, Inc., will be $2.85 per share. The dividends are anticipated to maintain a growth rate of 7.5% forever. Assume the stock currently sells for $49.30 per share. A. What is the dividend yield?B. What is the expected capital gains yield?

Answer 1

Answer:

A. Dividend yield;

= Next Dividend / Stock price

= 2.85/49.30

= 5.78%

B. Expected capital gains yield.

The stock price is going to increase by the amount that the dividend increases by so the capital gains yield will be the same as the growth rate which is;

= 7.5%