Home Services common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 a share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield?

Question

Quizplus · Accepted Answer

The dividend yield is calculated as the annual dividend divided by the current price of the stock. Given the last annual dividend ($2.27) and its growth rate (2.1%), the next annual dividend is $2.27 * (1 + 0.021) = $2.3187. The expected total return (14.56%) is the sum of the dividend yield and the growth rate. So, to find the dividend yield, we subtract the growth rate from the total expected return: 14.56% - 2.1% = 12.46%.

Home Services Common Stock Offers an Expected Total Return of 14.56