A company does not plan to pay dividends until 3 years from now. The first dividend will be $3 (i.e. D3=$3). After that, dividends will increase by a fixed rate of 3.5% per year indefinitely. The required return on the stock is 12%.
What are the stock price, dividend yield, and capital gains yield in 2 years?
What are the stock price, dividend yield, and capital gains yield in 5 years?
What are the stock price, dividend yield, and capital gains yield this year?
Explain what will happen to the stock price after the dividends have begun to be paid.