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Shares of common stock of the Windy Farms offer an expected total return of 13.8%. The dividend...

Question:

Shares of common stock of the Windy Farms offer an expected total return of 13.8%. The dividend is increasing at a constant 4.2% per year.

What is the dividend yield?

Calculating Dividend Yield

The dividend yield is calculated annually, it is not calculated monthly, semi-annually or quarterly. The calculation of dividend yield is important for the investors. It is expressed in percentage.

Answer and Explanation:

Given that expected total return, {eq}E (r) {/eq} = 13.8% and constant growth in dividend, {eq}g {/eq} = 4.2%

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

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

{eq}DY {/eq} = 13.8% - 4.2%

{eq}DY {/eq} = 9.6%

Hence, the dividend yield is 9.6%.


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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