# Snyder Co. is experiencing a period of rapid growth. Earnings and dividends are expected to grow...

## Question:

Snyder Co. is experiencing a period of rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% in the third year, and at a constant rate of 6% thereafter. Snyder's last dividend was \$1.15, and the required rate of return (equity cost of capital) on the stock is 12%. Calculate the dividend yield and capital gains yield for Years 1, 2, and 3.

## Dividend Yield:

The dividend yield is a ratio that compares the dividend generated from the company with its existing share price. This ratio is used by investors to compare the dividend yield of several companies.

Step 1: Compute the dividend yields for the stock. We have,

{eq}Dividend \ Yield \ = \displaystyle \frac{Annual \ Dividend}{Current \ Stock \ Price} {/eq}

Year Current dividend Current price Dividend yield = Current dividend / Current price
0 1.15 1.15/0.12 = 9.58 12.00%
1 1.32 1.32/0.12 = 11.02 11.98%
2 1.52 1.52/0.12 = 12.65 12.02%
3 1.72 1.72/0.12 = 14.31 12.02%

Step 2: Calculation of the capital yields for the stock. We have,

Year Current price Capital gain = End price - Beginning price Capital gain yield = Capital gain / Beginning price * 100
0 9.58 0 0
1 11.02 11.02 - 9.58 = 1.44 15.03%
2 12.65 12.65 - 11.02 = 1.63 14.79%
3 14.31 14.31 - 12.65 = 1.66 13.12% 