Shares of Bleckwell Remodelers common stock are currently selling for $32.50 a share. The last annual dividend paid was $2.25 per share. The market rate of return is 14%. At what rate is the
Dividend growing?

Question

Quizplus · Accepted Answer

The dividend growth rate can be calculated using the Gordon Growth Model:Dividend Growth Rate = (Current Dividend / Current Stock Price) * (Market Rate of Return - Dividend Yield)Dividend Yield = Last Annual Dividend / Current Stock PriceDividend Yield = $2.25 / $32.50 = 0.0692Dividend Growth Rate = (0.0692 / 0.14) * (0.14 - 0.0692)Dividend Growth Rate = 0.0662 or 6.62%

Shares of Bleckwell Remodelers Common Stock Are Currently Selling for $32.50