Company A currently does not pay a dividend. However their CEO has announced tha

Question

Company A currently does not pay a dividend. However their CEO has announced that in two years they intend to initiate a dividend of $2.00 per share and that the dividend will grow at constant 5% per year for the foreseeable future. Company A's shareholders demand a 12% return. If you were modeling the value of their equity, this stock would most closely resemble a:
1-Zero-growth stock
2-constant-growth stock
3-non-constant growth stock
4-high dividend yielding stock
5-low capital gains yielding stock

Explanation / Answer

current dividend x (1 + dividend growth)) / (required return – dividend growth) 4.its a high dividend yielding stock

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