Keenan Co. is expected to maintain a constant 3.6 percent growth rate in its div

Question

Keenan Co. is expected to maintain a constant 3.6 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.4 percent, what is the required return on the company’s stock? (Round your answer to 2 decimal places. (e.g., 32.16))

Keenan Co. is expected to maintain a constant 3.6 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.4 percent, what is the required return on the company’s stock? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Stock price = D1÷(r-g)

D1 is next expected dividend

r is cost of common stock

g is growth rate

r-g = D1÷Stock price

r-3.6% = 5.4%

Required return on common stock, r = 9%

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