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The constant dividend growth valuation model uses the value of a firm's dividends in the numerator of the equation. Dividends are divided by the difference
The constant dividend growth valuation model uses the value of a firm's dividends in the numerator of the equation. Dividends are divided by the difference between investors' required return and the dividend growth rate, as follows: = (T- g) Which of the following statements best describes how a change in a firm's stock price would affect a stock's capital gains yield? The capital gains yield on a stock that the investor already owns has an inverse relationship with the firm's expected future stock price. The capital gains yield on a stock that the investor already owns has a direct relationship with the firm's expected future stock price. Consider the case of Walter Utilities: Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.05 at the end of the year. Its dividend is expected to grow at a constant rate of 6.50% per year. If Walter's stock currently trades for $28.00 per share, the average investor should expect to earn a return of %. (Note: Round your answer to two decimal places.) Walter's dividend is expected to grow at a constant growth rate of 6.50% per year. What do you expect to happen to Walter's expected dividend yield in the future? It will decrease. It will stay the same. It will increase
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