John Smith is a junior financial analyst in the equity department of the Traveler Mutual Fund. His job is to analyze stocks assigned by the fund manager, Ben Ashford. At the beginning of November, 2018, Mr. Ashford assigned John to analyze the stock of DTE Energy. He asked John to estimate the intrinsic (fundamental) value of DTE Energy stock to help him decide whether the fund should buy, hold or sell DTE Energy stocks.

John recalled that he had learned the dividend growth model in his finance course to estimate the intrinsic value of a stock. To implement the dividend growth model, he first needed to know the current dividend payment of DTE Energy. Second, he needed to estimate the growth rate of dividends forever. Finally, he needed to estimate the required rate of return of the stock based on the risk level of the stock.

John next finished the following jobs:

1- Browsed Yahoo Finance and found the symbol for DTE Energy stock.

2- On Yahoo Finance, John checked DTE dividend payments for 2018 and assumed that the dividend payments for the last quarter of 2018 will be the same as that for the third quarter. (Please note: There is a mistake in the Yahoo Finance. There was no cash dividend paid in February 2018. Please refer to: http://ir.dteenergy.com/phoenix.zhtml?c=68233&p=irol-dividends).

3- On Yahoo Finance, John also collected dividend payments from 1987 to 2017. He calculated the growth rate of dividends each year and then calculated the average annual dividend growth rate over the periods. The average growth rate was used as the estimate of the growth rate of dividends forever. (Please note: There is a mistake in the Yahoo Finance. In September, there was only one dividend payment of $0.825 on September 14. NO dividend is paid on September 15. In other words, the total dividend payment in 2017 is 0.825x3+0.8825=$3.36).

4- Based on the risk level of DTE Energy stock, he estimated that the required rate of return of the stock was around 5.58%.

5- Based on the estimates he obtained from 2 through 4, John input the estimates to the dividend growth model to estimate the intrinsic value of the DTE Energy stock.

6- Since John knew that the estimated intrinsic value of a stock based on the dividend growth model is very sensitive to the estimated growth rate of dividends. Hence, he did the sensitivity analysis to see how the intrinsic value will be if the estimated growth rate changes. Please use 80%, 90%, 100%, 110% and 120% of the average growth rate computed in Step 2.