The current dividend yield on Clayton's Metals common stock is 2.5 percent. The company just paid a $1.48 annual dividend and announced plans to pay $1.54 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?

Question

Quizplus · Accepted Answer

The required rate of return is the dividend yield plus the dividend growth rate. The dividend yield is 2.5 percent, and the dividend growth rate is expected to remain constant at the current level of 4 percent. Therefore, the required rate of return is 2.5 percent + 4 percent = 6.55 percent.

The Current Dividend Yield on Clayton's Metals Common Stock Is