Dividend growth rate for a stable firm can be estimated as:
A) Plow back rate/the return on equity (ROE)
B) Plow back rate * the return on equity (ROE)
C) Plow back rate + the return on equity (ROE)
D) Plow back rate - the return on equity (ROE)

Question

Quizplus · Accepted Answer

Dividend growth rate is the percentage increase in dividends per share over a period of time. It can be estimated using the formula: Plow back rate * ROE. Plow back rate is the proportion of earnings retained by the firm to reinvest back into the business, while ROE is the return on equity, which is the net income divided by shareholders' equity. Therefore, multiplying the plow back rate with the ROE gives the estimated dividend growth rate for a stable firm.

Dividend Growth Rate for a Stable Firm Can Be Estimated