Question

this year a company paid $1.57 per share in dividends. next year they expect the dividend payout to increase by 3.2%. what will be next year's dividend payout per share (assuming no change in shares)

Answer 1

this year a company paid $1.57 per share in dividends. next year they expect the dividend payout to increase by 3.2%.  $1.67 will be next year's dividend payout per share.

The annualized percentage rate of growth in a stock's dividend over time is known as its dividend growth rate. Many established businesses aim to regularly raise the dividends they pay to investors. The dividend growth rate is a crucial input for dividend discount models, which are stock valuation models.

Using the dividend discount model requires the ability to determine the dividend growth rate. One kind of security-pricing methodology is the dividend discount model. The dividend discount model makes the assumption that the price of a given stock is determined by the expected future dividends, discounted by the excess of internal growth over the company's estimated dividend growth rate. The dividend discount model process considers a stock to be undervalued if the result is greater than the share price at the time it was run. By calculating the projected value of future cash flows, investors who use the dividend discount model think they can determine the intrinsic value of a particular stock.

Use the following formula to determine the growth from one year to the next:

Dividend Growth= (Dividend Year(current) / (DividendYear(last year))) - 1

$( 1.57)(1+(3.2/100))^{2}= 1.67$

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