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Shares of common stock of the Windy Farms offer an expected total return of 10.1%. The dividend...

Question:

Shares of common stock of the Windy Farms offer an expected total return of 10.1%. The dividend is increasing at a constant 0.9% per year.

What is the dividend yield?

Determining Dividend Yield

Dividends are very important for the investors to keep them happy. The company should keep in mind the benefits and drawbacks of dividend when the dividend policy is framed.

Answer and Explanation:

Given that expected total return, {eq}E (r) {/eq} = 10.1% and constant growth in dividend, {eq}g {/eq} = 0.9%

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

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

{eq}DY {/eq} = 10.1% - 0.9%

{eq}DY {/eq} = 9.2%

Hence, the dividend yield is 9.2%.


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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