For the past six years, the stock price of Slippery Rock Mining has been increasing at a rate of 6.6 percent per year. Currently, the stock is selling for $73 per share and has a required return of 9.1 percent. What is the dividend yield?

2.50%

Explanation:

The dividend yield can be computed by dividing annual dividend by share price. As the dividend is not given in the question, we will find the dividend first by the required return formula and then divide it by share price in order to calculate the yield.

DATA

Annual dividend =?

Growth rate = 6.6%

Share price = $73

Required return = 0.1%

Solution

Required return = (D1/price) + growth rate

0.091 = (D1 / 73) + 0.066

0.025 = D1 / 73

D1 = 1.825  

Dividend yield = (D1 / price) * 100

Dividend yield = (1.825 / 73) * 100

Dividend yield = 2.50%