A company has stock which costs $ 41.00 per share and pays a dividend of $ 2.30 per share this year. The company's cost of equity is 11 %. What is the expected annual growth rate of the company's dividends?

5.4%

Explanation:

Data provided as per the question

Cost of equity = 11%

Dividend = $2.30

Stock cost = 41.00

The computation of expected annual growth rate is shown below:-

Required rate = Dividend yield + Annual Growth Rate

Dividend : Price + Annual Growth Rate

11% = $2.30 : 41 + Annual Growth Rate

11% = 5.60% + Annual Growth Rate

Annual Growth rate = 11% - 5.60%

= 5.4%