Sugar Cookies Inc. is set to pay an annual dividend of $1.23 per share next year. The company anticipates an increase in this dividend at a rate of 8 percent annually for the next four years. After this period, the growth rate of the dividend is expected to decrease.
To illustrate the future dividends:
- Year 1: $1.23
- Year 2: $1.23 * 1.08 = $1.33 (8% increase)
- Year 3: $1.33 * 1.08 = $1.43 (8% increase)
- Year 4: $1.43 * 1.08 = $1.54 (8% increase)
- Year 5: This is where the growth rate changes, and we’ll need further information about the new growth rate to calculate the dividend.
The initial growth phase shows a strong and consistent increase in dividends, reflecting the company’s strategy of rewarding shareholders. The shift in growth rate after four years indicates a change in business strategy or market conditions that could significantly impact future dividend payouts.