I have a question, thank you for your time! Suppose you know that a company\'s s

Question

I have a question, thank you for your time!

Suppose you know that a company's stock currently sells for $70 per share and the required return on the stock is 15 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current dividend per share

Explanation / Answer

Required return = Capital gains yield + dividend yield

Since the total return is evenly divided,

Dividend yield = Required return/2 = 0.15/2 = 0.075

Dividen yield = Current dividend/share price

0.075 = Current dividend/70

Current dividend = 5.25%

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