A company recently announced an increase of their quarterly dividend from $.05 to $.06 per share. This continued a long string of double-digit percentage increases in dividends. Suppose you want to use the dividend growth model to value this firm’s stock. You believe that dividends will keep growing at 10% per year indefinitely, and you think the market’s required return on this stock is 11%. 

Let’s assume that the firm pays dividends annually and that the next dividend is expected to be $0.23 per share. The dividend will arrive in exactly one year. What would you pay for the stock right now? 

Suppose you buy the stock today, hold it just long enough to receive the next dividend, then sell it. What rate of return will you earn on that investment?

Answer rating: 100% (QA)

Stock valuation Stock valuation is the method of determining the value of a stock which is the ... View the full answer