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Shares of common stock of the Stillwaters Farms offer an expected total return of 12.51%. The...

Question:

Shares of common stock of the Stillwaters Farms offer an expected total return of 12.51%. The dividend is increasing at a constant 3.47% per year.

What is the dividend yield?

Dividend Yield

Dividend yield defines the relationship between dividend payout and current stock price. It varies with the change in stock price during the day. Therefore, it changes constant with the movement in stock price.

Answer and Explanation:

Given that expected total return, {eq}E (r) {/eq} = 12.51% and constant growth in dividend, {eq}g {/eq} = 3.47%

The dividend yield, {eq}DY {/eq} is calculated using the equation

{eq}DY = E (r) - g {/eq}

{eq}DY {/eq} = 12.51% - 3.47%

{eq}DY {/eq} = 9.04%

Hence, the dividend yield is 9.04%.


Learn more about this topic:

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What Is Dividend Yield? - Definition & Calculation

from Corporate Finance: Help & Review

Chapter 2 / Lesson 10
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