Gordon Growth Payout Example
C Company is making huge
profit and board of director has decided to pay 70% of its earning. The cost of
investment of C & Co is 11%. Calculate the Gordon Growth of Dividend.
Solution
Gordon
Growth of Dividend = Retained Earning x Return, this formula can be expressed
G=Br
Where,
G=
Dividend Growth Rate
B=
Retained earning
r=
Rate of return on equity
In this example we are not given dividend
retained %, therefore in first place we would calculate the Dividend retained
from dividend payout % i.e. (Divided retained = 1- Dividend paid).
1.
Retained Divided
Dividend Retained = (1- Dividend paid)
Dividend Retained = (1- 70%)
Dividend Retained = 30%
2. Dividend Growth
=
30% x 11%
=3.3%
