Question

Lotsa Lenses paid a dividend of $1.17 last year and plans a dividend growth rate of 3.70% indefinitely. Lotsa’s stock price is now $14.44. What return can Lotsa Lenses’ investors expect on their stock?

Answer 1

Answer:

12.10%

Explanation:

Given that,

Dividend paid last year = $1.17

Dividend growth rate = 3.70%

Stock price = $14.44

Dividend for the next period:

= Dividend paid last year × (1 + Dividend growth rate)

= $1.17 × (1 + 0.037)

= $1.17 × 1.037

= $1.21329

Return expected:

= (Dividend for the next period ÷ Current price) + Growth rate

= ($1.21329 ÷ $14.44) + 0.037

= 0.0840 + 0.0370

= 8.40% + 3.70%

= 12.10% (Approximately)