What is the current dividend per share

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Question - Using the dividend growth model, a stock's total return (R) can be rearranged into two components. The first component, D1 / P0, is called a dividend yield and is calculated as the expected cash dividend by the current price (this is conceptually similar to a bond's current yield). The second component is the growth rate, g. This growth rate can be interpreted as the capital gains yield-the rate at which the value of the investment grows.

Suppose you know that a company's stock currently sells for $100 per share and the required return on the stock is 12.5 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?

Reference no: EM132791566

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