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.
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.