Given EPS = 2 Expected growth rate of dividends = 5% k = 10% payout = 50% Calculate stock price
21?
2*50%*1.05/(.1-.05)=blackjack
thats correct but is ‘Expected growth rate of dividends’ not different from ‘Expected growth rate’? g = ROE * retention dividend = ROE * payout I thought it should have been g = 5 *50% / 50% = 10% D1 = 2 * 1.05 This will give the same answer but will change if the payout was anything other than 50%, say 60 % g = 5 *40% / 60% since if 60 % is paid out in dividents, 40% stays for the growth of g D1 = 2 * 1.05
I know only one formula for growth, and that’s g=ROE*rr=ROE*(1-payout). What you calculated there seems to be ROE.
Please see the edited note above
dividend =EPS*payout, growt of dividend would come from the growth of EPS, that would come from the growth of the company