Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?
A) No dividends for five years, then increasing dividends forever
B) $1 per share annual dividend for two years, then $1.25 annual dividends forever
C) Decreasing dividends for six years followed by one final liquidating dividend payment
D) Dividends payments that increase by 2, 3, and 4 percent respectively for three years followed by a constant dividend thereafter
E) Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

Question

Quizplus · Accepted Answer

Two-stage growth implies that the company's dividend growth will follow two different stages. In this case, the company is expected to have high growth rates for the first five years, followed by a lower growth rate thereafter. Choice E perfectly fits this description, as it has increasing dividends at a rate of 10% for the first five years and then a lower growth rate of 3% onwards.

Which One of the Following Sets of Dividend Payments Best