Return on Common Stockholders\' Equity, Dividend Yield, and Dividend Payout The

Question

Return on Common Stockholders' Equity, Dividend Yield, and Dividend Payout The following information relates to Litchfield, Inc.: 2015 2016 Net income Preferred stock dividends Average common stockholders equity 4,000,000 4,200,000 Dividend per common share Earnings per share Market price per common share, year-end 58.00 59.50 $100,000 $140,000 15,000 15,000 2.90 3.10 5.80 5.90 a. Calculate the company's return on common stockholders' equity for 2015 and 2016. b. Calculate the company's dividend yield for 2015 and 2016 c. Calculate the company's dividend payout for 2015 and 2016 Round answers to one decimal point. 2015 2016 a. Return on Common Stockholder Equity 96 b. Dividend Yield c. Dividend Payout

Explanation / Answer

Litchfield Inc

2015

$2,016

Return on stockholder equity

2.10%

3%

Dividend Yield

5%

5%

Dividend payout

50%

52.50%

Computations:

Return on common stockholder equity = [net income – preferred dividend]/average common stockholders’ equity

For 2015 –

Net income = $100,000

Preferred dividend = $15,000

Average common stockholders’ equity = $4,000,000

Return on stockholder equity = (100,000 – 15,000)/4,000,000 = 2.125%

For 2016 –

Net income = $140,000

Preferred dividend = $15,000

Average common stockholders’ equity = $4,200,000

Return on stockholder equity = (140,000 – 15,000)/4,200,000 = 2.98%

Hence, Return on stockholder equity for 2015 and 2016 is 2.1% and 3%, respectively.

Dividend yield = annual dividend per share/current market price per share

For 2015 –

Annual dividend per share = $2.90

Current market price per common share = $58

Dividend yield = 2.90/58 = 5%

For 2016 –

Annual dividend per share = $3.10

Current market price per common share = $59.50

Dividend yield = 3.10/59.50 = 5%

Dividend payout = Dividend per share/Earning per share (EPS)

For 2015 –

Dividend per share = $2.90

EPS = $5.80

Dividend payout ratio = 2.90/5.80 = 50%

For 2016 –

Dividend per share = $3.10

EPS = $5.90

Dividend payout ratio = 3.10/5.90 = 52.5%

2015

$2,016

Return on stockholder equity

2.10%

3%

Dividend Yield

5%

5%

Dividend payout

50%

52.50%

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