Shares of common stock of the Timken Co. offer an expected total return of 16%. The dividend is increasing at a constant 6% per year. What is the capital gain yield?

Question

Quizplus · Accepted Answer

10.0%The expected total return on a stock is the sum of the dividend yield and the capital gain yield. Given that the total expected return is 16% and the dividend is growing at a constant rate of 6% per year (which contributes to the total return), the capital gain yield must be the difference between the total return and the dividend growth rate. Therefore, the capital gain yield is 16% - 6% = 10%.

Shares of Common Stock of the Timken Co