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%

A stock is selling today for $20 per share. At the end of the year, it pays a dividend of $2 per share and sells for $23.

A stock is selling today for $20 per share. At the end of the year, it pays a dividend of $2 per share and sells for $23.

a.	What is the total rate of return on the stock?

Rate of return

%

b.	What are the dividend yield and percentage capital gain?

Dividend yield	%
Capital gains yield	%

Explanation:

 a.

Rate of return =	capital gain + dividend	=	($23 − $20) + $2	= 0.25 = 25%
	initial share price		$20

b.

Dividend yield = dividend/initial share price = $2/$20 = 0.10 = 10%

Capital gains yield = capital gain/initial share price = $3/$20 = 0.15 = 15%