Capital Gains versus Income [LO1]

Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $4.00 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and –5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 10 percent growth rate thereafter.

What is the dividend yield for each of these four stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place, e.g., 32.1.)

Dividend yield

  Stock W              %

  Stock X               %

  Stock Y                %

  Stock Z                %

What is the expected capital gains yield for each of these four stocks? (Leave no cells blank - be certain to enter "0" wherever required. Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place, e.g., 32.1.)

Capital gains yield

  Stock W              %

  Stock X               %

  Stock Y                %

  Stock Z                %