# Grinold-Kroner

Formula is E ®= expected dividend yield - expected change in number of shares + expected inflation + expected real earnings growth rate + expected change in P/E

I don’t get why we need to substract the change in number of shares. If the number of shares change, the price will adjust, therefore the dividend yield (D/P) will adjust also.

So if we plug in the expected dividend yield we are already counting the expected change in number of change. It looks like we are double counting the effect of the change in number of shares with this formula.

This is probably on a per-share basis, and not your total return.

Correct. #Memorizetheformula #applytheformula #getthepoints #don’taskquestions #taketheeasypoints #grinoldandkroneriseasypoints

realize that it is # of shares repurchased …

qualify that … in your original formula

when you repurchase shares - the E® on a per share basis goes UP … because there are fewer shares on the denominator.

that is why it is -DeltaS …

if you repurchase DeltaS is negative - so -DeltaS is positive.

I think I have understood: when a corporation does a buyback the price of shares will go up and the dividend yield will decrease.

So ceteris paribus the expected return would be less if we don’t adjust for the repurchase number.

In other words, the dividend yield doesn’t incorporate the capital gain component, we need to incorporate it by adding the delta of shares outstanding.

Not really, the DPS goes up as well.

false

Explain

Dividend per share will increase but price will increase so dividend yield will stay stable (not decrease as I initially said).

But anyway I don’t think the formula is on a per share basis since its the earnings growth rate and not the EPS growth rate.

If it were EPS growth, then you wouldn’t need to subtract the change in number of shares.