Saturated Meat Corporation preferred stock is currently selling for $22 per share. The preferred dividend is $2.50 per share. If Jennifer requires a return of 10% on the preferred stock, should she invest in this stock?

10% of 22 = 2.2

What do you think?

I think not but why?

She should buy this stock. The yearly dividend is $2.50. That is more than 10% of the investment.

To determine whether Jennifer should invest in Saturated Meat Corporation preferred stock, we need to calculate the dividend yield and compare it to her required return.

The dividend yield is calculated by dividing the annual dividend by the stock price:

Dividend Yield = Annual Dividend / Stock Price

Given that the preferred dividend is $2.50 per share and the stock is currently selling for $22 per share:

Dividend Yield = $2.50 / $22

Dividend Yield ≈ 0.1136 or 11.36%

Now, we compare the dividend yield to Jennifer's required return of 10%. If the dividend yield is higher than her required return, it may be a favorable investment. Otherwise, it may not meet her expectations.

In this case, the dividend yield of 11.36% is higher than Jennifer's required return of 10%. Therefore, Jennifer should consider investing in Saturated Meat Corporation preferred stock, as it offers a higher return than she requires.