Assume that analysts are projecting a current year growth rate = 6.5% for TT. Given this growth rate, what is your estimate of the required return on TT common stock with the dividend growth model? What do you observe about the relative contribution to the total return from the dividend yield as opposed to the capital gains yield?

 

Given: 

• growth rate (g) = 6.5%
• current price of the stock (P0) = $157.86
• current year dividend = $2.68