1. Visit finance.yahoo.com and search for AT&T (T) and Microsoft (MSFT). 2. Go to the 'Historical Data'...
Question:
1. Visit finance.yahoo.com and search for AT&T (T) and Microsoft (MSFT).
2. Go to the 'Historical Data' tab and download the dividend data for the last 10 years.
3. Calculate the average annual growth rate of dividends. You can do this by taking the dividend from the most recent year and the dividend from 10 years ago. Use the formula: [(Recent Dividend / Dividend from 10 years ago)^(1/10)] - 1
4. Adjust the most recent quarterly dividend to an annual dividend by multiplying it by 4.
5. Use the Gordon Growth Model (also known as the constant dividend growth model) to calculate the required rate of return. The formula is: Required Return = (Annual Dividend / Current Price) + Dividend Growth Rate
6. Compare the required rate of return for both stocks.
If the required rate of return is higher than what you require for your investments, it might be a good investment. However, remember that this model assumes that dividends grow at a constant rate indefinitely, which might not be the case. Always consider other factors and risks before making investment decisions.
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford