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In its most recent quarterly earnings report, Smith Brothers Garden Supplies said it planned to increase its dividend at an annual rate of 13% for the foreseeable future. Analyst Clinton Spears has an annual return target of 15.5% for Smith Brothers stock. He decides to use the dividend-growth rate to back out another return estimate to test against his. Smith Brothers stock trades for $55 per share and earned $3.01 per share over the last 12 months. The company paid a dividend of $2.15 per share during the 12-month period, and its dividend-growth rate for the last five years was 9.2%.
Using the Gordon Growth model, the required annual return for Smith Brothers stock is closest to: A. 13.47%. B. 17.42%. C. 19.18%. |