The next dividend payment by DoneForNow Co DFN will be 200 p

The next dividend payment by DoneForNow Co. (DFN) will be $2.00 per share. The dividends are anticipated to maintain a growth rate of 5% forever. If the stock currently sells for $40 per share, what is the required return?

For DFN (above), what is the dividend yield? What is the expected capital gains yield?

Solution

dividend yield for the stock = 2/40

dividend yield for the stock = 5.00%

expected capital gains yield = 5%