The next dividend payment by Mosby, Inc., will be $2.85 per share. The dividends are anticipated to

The next dividend payment by Mosby, Inc., will be $2.85 per share. The dividends are anticipated to maintain a 7.50 percent growth rate, forever. Assume the stock currently sells for $49.30 per share.

 

Requirement 1:

What is the dividend yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

 

Dividend yield

%

 

Requirement 2:

What is the expected capital gains yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

 

Capital gains yield

%

Explanation: 1:

The dividend yield is the dividend next year divided by the current price, so the dividend yield is:

 

Dividend yield = D1 / P0

Dividend yield = $2.85 / $49.30

Dividend yield = 0.0578 or 5.78%

2:

The capital gains yield, or percentage increase in the stock price, is the same as the dividend growth rate, so:

  Capital gains yield = 7.50%