common shareholders of BFG inc. received the following dividends (per share) in recent years: $0.10 in March 2019, $0.15 in March 2020, $0.15 in March 2021 and $0.20 in March 2022 (the dividend is still paid at the end of March). Dividend growth is expected to continue at the average historical rate for another four years. Thereafter, the dividend growth rate will be 5%. The rate of return demanded by the common shareholders of BFG inc. is 14%. Your valuation date is the beginning of April 2022. Calculate the average growth rate of the dividend per share over the last financial years, from March 2019 to March 2022 and calculate the price at which this common stock should sell based on the information provided to
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
The common shareholders of BFG inc. received the following dividends (per share) in recent years: $0.10 in March 2019, $0.15 in March 2020, $0.15 in March 2021 and $0.20 in March 2022 (the dividend is still paid at the end of March). Dividend growth is expected to continue at the average historical rate for another four years. Thereafter, the
Calculate the average growth rate of the dividend per share over the last financial years, from March 2019 to March 2022 and calculate the price at which this common stock should sell based on the information provided to you.
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