Question

Seagate Technology is a global leader in data storage solutions and a​ high-yield dividend payer. From 2015 through 2019​, Seagate paid the following​ per-share dividends:

Year	Dividend per share
2019	​$2.52
2018	2.22
2017	1.85
2016	1.17
2015	1.56

Assume that the historical annual growth rate of Seagate dividends is an accurate estimate of the future constant annual dividend growth rate. Use a 19​% required rate of return to find the value of​ Seagate's stock immediately after it paid its 2019 dividend of $2.52.

a.) The value of​ Seagate's stock is ...

Answer 1

Step 1: Find Compound Annual Growth Rate (CAGR) Ending Dividend Paid -^(1/n)-1 Beginning Dividend Paid II $2.52 $1.56 -^(1/4)-1 II $1.6154 ^(1/4)-1 = ($1.6154^0.25) -1 II $1.1274 -1 II 12.74%

Step 2 : Calculate Stock Price by using Dividend Discount Model(DDM) D1 PO = Ke-g Where, Po = Stock Price D1 = Dividend to be paid in next year = Do+g Do = Dividend paid in last year = $2.52 Ke = Required Rate of return = 19% growth rate = 12.74% Pos $2.84 0.0626 Po = $45.38 The value of Seagate's stock is $45.38