When using the Dividend Discount Model, assuming that growth (g) will remain constant, under which of the following circumstances will the dividend yield be equal to the required return on a common stock (rs)?

Question

Quizplus · Accepted Answer

If growth (g) is equal to 0, the dividend will not be increasing, and the price of the stock will not appreciate. Therefore, the only way investors can receive a return on their investment is through the dividend yield (which is the percentage of the current stock price that is paid out to investors in the form of dividends). In this scenario, the dividend yield will be equal to the required return on the common stock (rs).

When Using the Dividend Discount Model, Assuming That Growth (G)