Information on Royal Bank (RY):
•Royal Bank Common Shares (RY) recently closed at $103.35 on the TSE.
•Royal Bank profit last year was approximately $13 Billion
dollars,from which it paid out $5.2 Billion in dividends.
• ROE for the Royal Bank is estimated to be fairly stable at 18.2%.
actual quarterly dividends of RY for the years 2014 to 2018 and the
estimated quarterly dividend for 2019.
Year Quarterly Dividend
2014 $0.71
2015 $0.76
2016 $0.81
2017 $0.87
2018 $0.94
Estimated
2019 $1.02
A. The market expects this pattern of dividend increases to continue therefore, calculate the cost of equity
for RY.
Show all work please
B. If the Royal Bank was not planning to raise eternal
financing then what will RY’s growth rate
be?
Show all work in detail.
C.
Identify some advantages and disadvantages of the Dividend growth model.