MJ Co.pays out 60% of its earnings as dividends.Its return on equity is 15%.What is the stable dividend growth rate for the firm?
A)9%
B)5%
C)6%
D)15%

Question

Quizplus · Accepted Answer

The stable dividend growth rate can be calculated using the Gordon Growth Model as follows:
Stable dividend growth rate = (Payout ratio x Return on Equity)
                                = (0.60 x 0.15)
                                = 0.09 or 9%
Therefore, the correct choice is C) 6%.

MJ CoPays Out 60% of Its Earnings as Dividends