What is the minimum dividend payout ratio in 5 years’ time that would allow the company to achieve its objective?

A company’s main objective is to achieve an average growth in dividends of 10% a year.

In the most recent financial year:

Sales are expected to grow at 8% a year over the next 5 years.

Costs are expected to grow at 5% a year over the next 5 years.

What is the minimum dividend payout ratio in 5 years’ time that would allow the company to achieve its objective?
A . 21.7%
B . 30.0%
C . 27.5%
D . 22.5%

View Answer

Answer: A