Oswego Plumbing Works (ticker, OPW) just announced that it will cut next year's dividend, D₁, from $3.00 to $1.50 per share and the firm will use the extra funds to expand operations. Prior to this announcement, OPW's dividends were expected to grow at 6% per year and OPW's common stock was trading at a price of $26.00 /share. With the new expansion, OPW's dividends are expected to grow at 12% per year indefinitely Assuming the overall risk of the firm is unchanged by this expansion, the value of one share of OPW after the announcement is closest to: OA. $26.00 OB. $27.09 OC. $54.17 OD. $13.00
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.
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