Thursday, 31 July 2014

The next dividend payment by Wyatt, Inc., will be \$2.50 per share. The dividends are anticipated to

The next dividend payment by Wyatt, Inc., will be \$2.50 per share. The dividends are anticipated to maintain a growth rate of 5.75 percent, forever. Assume the stock currently sells for \$48.60 per share.

 Requirement 1: What is the dividend yield? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 Dividend yield %

 Requirement 2: What is the expected capital gains yield? (Do not round intermediate calculations. 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 = \$2.50 / \$48.60 Dividend yield = .0514, or 5.14%

2:
 The capital gains yield, or percentage increase in the stock price, is the same as the dividend growth rate, so:

 Capital gains yield = 5.75%