Brown Coffee will make a dividend payment this year of $2.10 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. If the stock currently sells for $48 per share, what is the required return?
Answers
Answer:
Explanation:
Calculating the Dividend Payout Ratio
The dividend payout ratio is commonly calculated on a total basis using the following formula:
\begin{aligned} &\text{DPR} = \frac{ DP }{ NI } \\ &\textbf{where:}\\ &DP = \text{Dividends paid} \\ &NI = \text{Net income} \\ \end{aligned}
DPR=
NI
DP
where:
DP=Dividends paid
NI=Net income
Another way to calculate the dividend payout ratio is on a per share basis. In this case, the formula used is dividends per share divided by earnings per share (EPS). EPS represents net income minus preferred stock dividends divided by the average number of outstanding shares over a given time period. One other variation preferred by some analysts uses the diluted net income per share that additionally factors in options on the company's stock.