You’ve collected the following information from your favorite financial website.
ID: 2819128 • Letter: Y
Question
You’ve collected the following information from your favorite financial website.
According to your research, the growth rate in dividends for DR Dime for the previous 10 years has been negative 10 percent.
If investors feel this growth rate will continue, what is the required return for DR Dime stock? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return %
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You’ve collected the following information from your favorite financial website.
Find the quote for the Lake Lead Group. Assume that the dividend is constant.
What was the highest dividend yield over the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Highest dividend yield %
What was the lowest dividend yield over the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Lowest dividend yield %
Yld % PE
Ratio Close
Price Net
Chg Hi Lo 77.40 10.43 Palm Coal .36 2.6 6 13.90 –.24 55.81 33.42 Lake Lead Grp 1.54 3.8 10 40.43 –.01 130.93 69.50 SIR 2.00 2.2 10 88.97 3.07 50.31 14.02 DR Dime .87 5.6 6 15.50 –.26 35.00 20.74 Candy Galore .32 1.5 28 ?? .18
Explanation / Answer
a.
Dividend yield = Annual dividends per share/ price per share
5.6% = Annual dividends per share/ 15.50
Annual dividends per share = 5.6% x15.50 = 0.868$
P0 = D0(1+g)/(r-g)
P0 = the stock price at time 0 = 15.50
D0 = the current dividend, =0.868
g = the growth rate in dividends, and = -0.1
r = the required return on the stock, and
g < r.
15.50 = 0.868(1-0.1)/(r- (-0.1))
r= -4.96%
b.Dividend yield = Annual dividends per share/ price per share
4.5% = Annual dividends per share/ 40.73
Annual dividends per share = 4.5% x40.73= 1.83285$
Lowest dividend yield % = Annual dividends per share/ highest price per share
= 1.83285 /56.11 = 3.266%
Highest dividend yield % = Annual dividends per share/ lowest price per share
=1.83285 /33.72
=5.422%
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