What is the dividend yield

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1. Juggernaut Satellite Corporation earned $23 million for the fiscal year ending yesterday. The firm also paid out 30 percent of its earnings as dividends yesterday. The firm will continue to pay out 30 percent of its earnings as annual, end-of-year dividends. The remaining 70 percent of earnings is retained by the company for use in projects. The company has 2 million shares of common stock outstanding. The current stock price is $97. The historical return on equity (ROE) of 13 percent is expected to continue in the future. What is the required rate of return on the stock?

2. Consider four different stocks, all of which have a required return of 14 percent and a most recent dividend of $3.50 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 7 percent, 0 percent, and -5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 30 percent for the next two years and then maintain a constant 8 percent growth rate thereafter. What is the dividend yield for each of these four stocks? What is the expected capital gains yield? Discuss the relationship among the various returns that you find for each of these stocks.

Reference no: EM131411857

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