Calculate Share price with Dividend Growth

Calculate Share price with Dividend Growth

Dividend paid = $ 8

Cost of equity = 8%

Dividend growth Rate= 2%

Calculate share price?

Solution

Share Price = Do (1+g)

                      Ke – g

g = Dividend growth Rate

Ke = Cost of Equity

Do =Current Dividend

= $ 8 (1+.02)

      8% - 2%

= 8.16

     6%

= $ 136 (Share Price)

Share price and Dividend Growth Example

Share price and Dividend Growth Example

Dividend paid = $ 6

Cost of equity = 12%

Dividend growth Rate= 5%

Calculate share price?

Solution

Share Price = Do (1+g)

                      Ke – g

g = Dividend growth Rate

Ke = Cost of Equity

Do =Current Dividend

= $ 6 (1+.05)

      12% - 5%

= 6.3

     7%

= $ 90 (Share Price)

Share price with Growth Example

Share price with Growth Example

Dividend paid = $ 4

Cost of equity = 15%

Dividend growth Rate= 6%

Calculate share price?

Solution

Share Price = Do (1+g)

                      Ke – g

g = Dividend growth Rate

Ke = Cost of Equity

Do =Current Dividend

= $ 4 (1+.06)

      15% - 6%

= 4.24

     9%

= $ 4711 (Share Price)

Calculate Share Price with no growth of dividend

Calculate Share Price with no growth of dividend

Share price can be calculated in case of no growth of dividend with following easy formula

Share price = Dividend/Cost of equity

Example

A company dividend for 2005 was = $ 7

Cost of Equity = 9%

Calculate the Share price ?

Solution

= $ 7/.09

= $ 77.77

Share Price and no growth of dividend

Share Price and no growth of dividend

Share price in case of no growth of dividend can be calculated with following formula

Share price = Dividend/Cost of equity

Example

A company announced dividend for 2001 = $ 6

Cost of Equity = 14%

Calculate the Share price for XYZ?

Solution

= $ 6/.14

= $ 42.85

Share Price Calculation with Zero Growth

Share Price Calculation with Zero Growth

Share price with zero growth of dividend may be calculated with a formula given below

Share price = Dividend/Cost of equity

Example

XYZ Company announced Dividend = $ 4

Cost of Equity = 15%

Calculate the Share price for XYZ?

Solution

= $ 4/.15

= $ 26,667

Share Price with no Growth in Dividend

Share Price with no Growth in Dividend

Share price with no growth in dividend may be calculated with following simple formula

Share price = Dividend/Cost of equity

Example

Company Dividend = $ 3

Cost of Equity = 13%

Calculate the Share price?

Solution

= $ 3/.13

= $ 23.076