The next dividend payment by Wyatt, Inc., will be $3.20 per share. The dividends

Question

The next dividend payment by Wyatt, Inc., will be $3.20 per share. The dividends are anticipated to maintain a growth rate of 6.75 percent, forever. Assume the stock currently sells for $50.00 per share.

What is the dividend yield? %

What is the expected capital gains yield? %

The next dividend payment by Wyatt, Inc., will be $3.20 per share. The dividends are anticipated to maintain a growth rate of 6.75 percent, forever. Assume the stock currently sells for $50.00 per share.

What is the dividend yield? %

What is the expected capital gains yield? %

Explanation / Answer

Dividend yield = Current dividend / Current stock price * 100%

= [$3.20 / (1+6.75%)] / $50.00 * 100%

= 5.995%

Required rate of return = Dividend next year / Current stock price + growth rate

= $3.20 / $50.00 * 100% + 6.75%

= 13.15%

Expected stock price next year = Dividend next year * (1+growth rate) / (Required rate - growth rate)

= $3.20 * (1+6.75%) / (13.15% - 6.75%)

= $53.38

Expected capital gains yield = (Expected price - Current price) / Current price * 100%

= ($53.38 - $50.00) / $50.00

= 6.75%

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