What the company is actually paying are the dividends on a share of common stock out to an infinite time frame.

But the dividends represents a growing perpetuity (at least for a constant dividend growth stock). If you’ve done the valuation reading, you know that the price of a share of common for a constant-growth stock is P = D(1)/(r-g) (i.e. it’s the PV of a growing perpetuity).

With a bit of rearranging, you get r = D(1)/§ + g, with g being the growth rate in dividends each year.

Since the price is the next period’s dividend divided by (r-g), if the dividend grows at a rate of “g”. so will the stock’s price.

So the cost of equity will be the dividend yield (D(1)/P(0) PLUS the % change in stock price.