Marjen Pty Ltd just paid a dividend of $5.Marjen shares currently sell for $73.57.The return on shares like Marjen is around 10%.What is the implied growth rate of dividends?

Question

Quizplus · Accepted Answer

The implied growth rate of dividends can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity) formula: P = D / (r - g), where P is the current stock price, D is the dividend just paid, r is the required rate of return, and g is the growth rate of dividends. Rearranging the formula to solve for g gives us g = r - (D / P). Substituting the given values (P = $73.57, D = $5, r = 10% or 0.10) gives us g = 0.10 - (5 / 73.57) = 0.10 - 0.0679 = 0.0321 or approximately 3%.

Marjen Pty Ltd Just Paid a Dividend of $5