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Thress Industries just paid a dividend of $1.40 a share. The dividend is expected to grow 5.30% a...

Question:

Thress Industries just paid a dividend of $1.40 a share. The dividend is expected to grow 5.30% a year for the next 3 years and then 11.90% a year thereafter.

What is the expected dividend per share for the 5th year?

Dividend Payments:

While companies have no obligation to pay dividend to common stockholders, companies in mature stage of growth generally have robust cash flows and pay healthy dividends on a regular basis. These companies attract income investors who seek regular cash inflows. In general, these companies from mature industries are also low beta stocks.

Answer and Explanation:

.

Given -

  • Dividend (Do) = $1.40

We can calculate the dividend for each of the next 5 years to arrive at the dividend for the 5th Year.

  • Dividend for Year 1 (D1) = {eq}1.40 * ( 105.30 / 100 ) = $1.47 {/eq}
  • Dividend for Year 2 (D2) = {eq}1.47 * ( 105.30 / 100 ) = $1.55 {/eq}
  • Dividend for Year 3 (D3) = {eq}1.55 * ( 105.30 / 100 ) = $1.63 {/eq}
  • Dividend for Year 4 (D4) = {eq}1.63 * ( 111.90 / 100 ) = $1.82 {/eq}
  • Dividend for Year 5 (D5) = {eq}1.82 * ( 111.90 / 100 ) = $2.05 {/eq}

Learn more about this topic:

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Cash Dividends & Dividend Payment

from Finance 101: Principles of Finance

Chapter 16 / Lesson 1
4.3K

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