Dividend Growth Rate

Explanation

The estimated growth rate of dividends = (Retention Rate) x (Return on Equity). In this case the estimated growth rate of dividends = (1 - Payout Ratio) x (ROE) =

70% x 10% = 7%.

To calculate the dividend growth rate for a company, we need to use the formula:

Dividend Growth Rate = Retention Ratio * Return on Equity (ROE)

The retention ratio is the portion of earnings that the company retains and reinvests in the business, while the remainder is paid out as dividends. In this case, the company pays out 30% of its earnings in dividends, which means the retention ratio is 1 - 0.30 = 0.70.

The ROE is a measure of the profitability of the company, representing the return generated on shareholder's equity. In this case, the ROE is given as 10%.

Now, let's calculate the dividend growth rate:

Dividend Growth Rate = 0.70 * 10% = 0.07 or 7.0%

Therefore, the correct answer is option E: 7.0%.