If $D0 = $2.75, g (which is constant) = 3%, and $P0 = $32, what is the stock's expected total return for the coming year?
The stock's expected dividend yield can be calculated by dividing the annual dividend by the stock price:
Dividend Yield = D0 / P0 = $2.75 / $32 = 0.0859 or 8.59%
The stock's expected capital gain can be calculated by multiplying the growth rate by the stock price:
Capital Gain = g * P0 = 0.03 * $32 = $0.96
Therefore, the stock's expected total return for the coming year is equal to the dividend yield plus the capital gain:
Total Return = Dividend Yield + Capital Gain= 8.59% + $0.96 = 9.55%