Question
Consider four different stocks, all of which have a required return of 19% and a most recent dividend of $2.40 per share. Stocks W, X,
Consider four different stocks, all of which have a required return of 19% and a most recent dividend of $2.40 per share. Stocks W, X, and Y are expected to maintain a constant growth rates in dividends for the foreseeable future of 8%, 0%, and -5% per year respectively. Stock Z is a growth stock that will increase its dividend by 20% for the next two years and then maintain a constant 12% growth rate thereafter. What is the dividend yield for each of these four stocks? What is the expected capital gains yield. Discuss the relationship among the various returns that you find for each of these stocks.
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