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%