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The following information is available for Italiano Ices for the years 2015 and 2014: 2014 2015...

The following information is available for Italiano Ices for the years 2015 and 2014:

2014 2015
market price of common stock $38.30 $44.00
earnings per share 2.00 1.77
dividends per share 1.00 0.88

Requirements:

A. Calculate the dividend yield for both 2015 and 2014

B. Does the dividend yield appear to be low, moderate, or high? What does your choice indicate about the company's strategy with regard to paying dividends?

C. What caused the change in the dividend yield ratio from 2014 to 2015?

Solutions

Expert Solution

2014

2015

market price of common stock

$38.30

$44.00

Earnings per share

2.00

1.77

Dividends per share

1.00

0.88

A) Dividend Yield   =    Annual dividend per share /   stock price per share

                    2014           =       1 / 38.30    = 0.0261

                     2015          =       0.88 / 44    = 0.02

B ) Dividend yield appears to be low in this case, as investors are getting only $ 0.02 for every dollar that the stock is worth. A low dividend is an indicator of organization’s future growth or instability. Low dividend yield indicates that the company is retaining more earnings for future growth and development. It also indicates that the market price of the stock is also considerably high than the dividend. This may lead large dividends in future.  

C)  From 2014 to 2015, the dividend yield is decreased a bit. It indicates the company is planning for future development and growth. That why retaining more earning.   

ekkarill92 answered 1 year ago
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