Expected Return American Eagle Outfitters (AEO) recently paid a $0.38 dividend. The dividend is expected to grow at a 15.5 percent rate. At the current stock price of $24.07, what is the return shareholders are expecting?

Question

Quizplus · Accepted Answer

The expected return is the sum of the dividend yield and the dividend growth rate. The dividend yield is the annual dividend divided by the current stock price. The dividend growth rate is the percentage change in the dividend from one year to the next. In this case, the dividend yield is $0.38/$24.07 = 1.58%. The dividend growth rate is 15.5%. Therefore, the expected return is 1.58% + 15.5% = 17.08%.

Expected Return American Eagle Outfitters (AEO) Recently Paid a $0