Last year, Toluca Engineering paid a $0.25 dividend per share each quarter. If Toluca announces both a 5% stock dividend and an increase in the quarterly dividend to $0.27, what is the effective rate of the dividend increase?
A) 13.0%
B) 8.0%
C) 11.2%
D) 13.4%

Question

Quizplus · Accepted Answer

The effective rate of the dividend increase considers both the increase in the cash dividend and the stock dividend. The cash dividend increased from $0.25 to $0.27, which is an 8% increase (($0.27 - $0.25) / $0.25 = 0.08 or 8%). The stock dividend means each shareholder receives 5% more shares, effectively increasing the dividend by 5%. The combined effect is (1.08 * 1.05) - 1 = 0.134 or 13.4%.

Last Year, Toluca Engineering Paid a $0