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    Ludwig Corporation: Growth Rate in Dividends and Yield

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    You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of $1.07, $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $26.22 at the end of 3 years.
    a. Calculate the growth rate in dividends.
    b. Calculate the expected dividend yield.
    c. Assuming the calculated growth rate is expected to continue, you can add the dividend yield to the expected growth rate to get the expected total rate of return. What is the stock's expected total rate of return?

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    Solution Preview

    Please refer to the attached document for a more in-depth explanation of the calculations.

    a. Calculate the growth rate in dividends.
    CAGR Growth = 4.61% (Current year/Base ...

    Solution Summary

    This solution calculates a stock's growth rate in dividends, the dividend yield, and the total rate of return.