solution

CVS Health Corporation is a health care company. The management team maintains a stable dividend using the Lintner model:

D_t+1= D_t + ?EPS × Target Payout × ?

Where
D_t (D_t+1) = dividend in the current period t (the next period t + 1)
EPS_t = earnings per share in period t
?EPS = EPS_t+1– EPS_t = change in EPS
Target Payout = target payout ratio = 50%
? = adjustment factor = 0.1

Last quarter, the dividend was $0.5 per share and the earnings per share were $5.10. The management is forecasting that earnings in the upcoming quarter will increase to $5.73 per share. What dividend for next quarter should analysts predict? Make your answer accurate to cents. That is, if your answer is 9.252, write 9.25. Also, do not include symbols (%,$) in your answer.