Dividend Payout Ratio: 35.10%

Explanation

To determine the dividend payout ratio, the equation used to determine the growth rate of dividends must be manipulated. This equation is originally structured as follows:

{g = ROE (1 - Dividend Payout Ratio)}

In order to determine the Dividend Payout Ratio, the equation must be rearranged to the following: {(1 - Dividend Payout Ratio) = Growth Rate of Dividends /

ROE}.

Imputing the given information into this equation will yield:

{(1 - Dividend Payout Ratio) = 0.0675/0.1125)} = 0.60

Finally, subtracting this answer from 1 will yield the answer of 40%. We must subtract the first answer from one because the first answer represents the retention rate, i.e. the percentage of earnings that is retained and reinvested at the firm's ROE, and not the Dividend Payout Ratio. The retention rate and the payout ratio will always combine to equal positive one. In order to determine the annual dividend, take the Dividend Payout Ratio, which was found to be 40%, and multiply this figure by the Earnings Per Share calculation, which is given as $4.19. This will yield an annual dividend of $1.676. As you can see, neither the discount rate nor the tax rate is factored into the equation