Question

Sandhill Co. just paid a dividend of $2.45 per share and its EPS is $17.15. Its book value per share (BVPS) is $120.05. Calculate Sandhill’s sustainable growth rate.

Answer 1

Earning per share (EPS)= $17.15

Just paid dividend per share (DPS)= $2.45

Book value per share= $120.05

Payout ratio $= DPS/EPS$

$=2.45/17.15$

$=0.14$

Plow-back ratio = 1-Payout ratio

$=1-0.14$

$=0.86$

Sustainable growth rate= Plow-black ratio*(EPS/Book value per share)

$=0.86*(17.15/120.05)$

$=\boxed{12.28\%}$

Sustainable growth rate 12.28%