Smith Motors Inc. manufactures, distributes, and services automotive parts and engines worldwide. Smith's income statement for the year just ending is shown below.
Assume that today is the first day of Year 2 and that Smith's common shares are trading at a price of $88. In its most recent Management Discussion and Analysis (MD&A) Smith's management forecast earnings-per-share of $7.5 for Year 2.
If Smith maintains its Year 1 payout ratio, then what is the dividend yield (based on forecasted earnings)?
SMITH MOTORS INC.
INCOME STATEMENT
YEAR 1 ($000,000's)
| Revenue |
$20,995 |
| COGS |
15,624 |
| SG&A |
2,466 |
| Dep. Exp. |
247 |
| EBIT |
2,658 |
| Int. Exp. |
55 |
| Pre-Tax Income |
2,603 |
| Income Tax |
898 |
| Net Income |
1,705 |
|
|
| Shares Outstanding (millions) |
205 |
| Total Common Dividends |
$300.5 |