Question

Great Lakes Health Care common stock offers an expected total return of 9.2 percent. The last annual dividend was $2.10 a share. Dividends increase at a constant 2.6 percent per year. What is the dividend yield?

A. 3.75 percent

B. 4.20 percent

C. 4.55 percent

D. 5.25 percent

E. 6.60 percent

Answer 1

E. 6.60 percent

Explanation:

We have been given that Great Lakes Health Care common stock offers an expected total return of 9.2 percent. The last annual dividend was $2.10 a share. Dividends increase at a constant 2.6 percent per year.

We will use total return formula to answer our given problem.

`\text{Total return}=\text{Dividend yield}+\text{Growth rate}`

Upon substituting our given values in above formula, we will get:

`9.2\%=\text{Dividend yield}+2.6\%`

`\text{Dividend yield}=9.2\%-2.6\%`

`\text{Dividend yield}=6.6\%`

Therefore, the dividend yield would be 6.60% and option E is the correct choice.