Locksmiths is expected to pay an annual dividend of 075 next

Locksmith\'s is expected to pay an annual dividend of $0.75 next year. The stock is selling currently for $10.90 a share and has a required rate of return of 11 percent. If the dividend is expected to grow at a constant rate, what is the dividend growth rate? 1) 3.62 percent 2) 3.85 percent 3)3.94 percent ) 4.12 percent

Solution

Required return=(D1/Current price)+Growth rate

0.11=(0.75/10.9)+Growth rate

Growth rate=0.11-(0.75/10.9)

which is equal to

=4.12%(Approx).