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Company A will pay a dividend of €1.30 per share today. The dividend per share is...

Company A will pay a dividend of €1.30 per share today. The dividend per share is expected to be €1.365 next year. The rate of return required by equity investors is 14.78% and the value of the stock today is estimated at €13.96 according to the Dividend Discount Model in stable growth.

What is the long-term rate of growth of dividends implied in this valuation?

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Answer #1

Required rate = ( D1 / share price) + growth rate

0.1478 = ( 1.365 / 13.96) + growth rate

Growth rate = 0.05 or 5%

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