Suppose you know that a company’s stock currently sells for $54 per share and the required return on the stock is 9 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?
im not sure, does anyone know?
To find the current dividend per share, we need to determine the dividend yield and then use it to calculate the dividend.
The dividend yield is the ratio of the annual dividend per share to the stock price. Since the total return on the stock is evenly divided between the capital gains yield and the dividend yield, we can compute the dividend yield as half of the required return.
First, calculate the dividend yield:
Dividend Yield = Required Return / 2
Dividend Yield = 9% / 2
Dividend Yield = 4.5%
Next, we can use the dividend yield to calculate the dividend per share. We know that the dividend yield is the ratio of the annual dividend per share to the stock price. Rearranging the formula, we get:
Dividend per share = Dividend Yield * Stock Price
Dividend per share = 4.5% * $54
Dividend per share = $2.43
Therefore, the current dividend per share is $2.43.