Tell Me Why Co is expected to maintain a constant 64 percent

Tell Me Why Co. is expected to maintain a constant 6.4 percent annual growth rate in its dividends indefinitely. If the company has an annual dividend yield of 8.2 percent, what is the required annual return on the company’s stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Required return

Solution

Annual growth or Capital gain yield = 6.40%

Dividend yield = 8.20%

Required return = Capital gain yield + Dividend yield = 6.40% + 8.20% = 14.60%