Question

Keenan Co. is expected to maintain a constant 3.8 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.6 percent, what is the required return on the company’s stock?

Answer 1

retet

Answer 2

9.4 PERCENT

Answer 3

[AI-generated answer — Explain Bot]

To find the required return on the company's stock, we need to use the dividend growth model, also known as the Gordon growth model.

The Gordon growth model formula is:

Required Return = Dividend Yield + Dividend Growth Rate

Given that Keenan Co. has a dividend yield of 5.6 percent and a constant growth rate of 3.8 percent, we can substitute these values into the formula:

Required Return = 5.6% + 3.8%
Required Return = 9.4%.

Therefore, the required return on Keenan Co.'s stock is 9.4%.