constant growth stocks are in equilibrium, have the same price, and have the same required rate of return Which of the following statements is CORRECT?
A) If one stock has a higher dividend yield, it must also have a lower dividend growth rate.
B) If one stock has a higher dividend yield, it must also have a higher dividend growth rate.
C) The two stocks must have the same dividend growth rate.
D) The two stocks must have the same dividend yield.
E) The two stocks must have the same dividend per share.

Question

Quizplus · Accepted Answer

If two stocks are in equilibrium with the same price and required rate of return, a higher dividend yield for one stock implies a lower dividend growth rate to maintain the same total return.

Constant Growth Stocks Are in Equilibrium, Have the Same Price