How do you calculate the projected dividends when we only know the current price of the...

Question

Question

How do you calculate the projected dividends when we only know the current price of the stock?

Answer 1

Answer #1

As per Dividend Discount Model,

P0= D1/(r-g)

Where P0= Current price of the stock, D1= Dividend expected in year 1, r= rate of return expected and g= constant growth rate of dividend.

Re-arranging the variables, Dividend next year (D1)= P0*(r-g)

Example:

Current Share price= $50, Expected rate of return= 8% and constant growth rate of dividend= 3%.

Then, Dividend next year D1 = $50*(0.08-0.03) = $50*0.05 = $2.5

Dividend for subsequent years will be higher by 3% of the previous year amount.

Answer 2

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