The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows:

P$0$

P

$$

$0$

$=$

$=$

D$1($rs $$ gL$)$

D

$1$

r

s

$$

g

L

If you were analyzing the consumer goods industry, for which kind of company in the industry would the constant growth model work best?

All companies

Mature companies with relatively predictable earnings

Young companies with unpredictable earnings

Walter Utilities is a dividend$-$paying company and is expected to pay an annual dividend of $$1\mathrm{.}05$ at the end of the year. Its dividend is expected to grow at a constant rate of $7\mathrm{.}00\%$ per year. If Walter$$s stock currently trades for $$30\mathrm{.}00$ per share, what is the expected rate of return?

$7\mathrm{.}03\%$

$6\mathrm{.}30\%$

$10\mathrm{.}50\%$

$7\mathrm{.}28\%$

Walter$$s dividend is expected to grow at a constant growth rate of $7\mathrm{.}00\%$ per year. What do you expect to happen to Walter$$s expected dividend yield in the future?

It will stay the same.

It will decrease.

It will increase.