FIN 300 Lecture Notes - Lecture 7: Dividend Yield, Preferred Stock, Common Stock
23 Nov 2016
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Let po be the current price of the stock and define p1 to be the price in one period, D1 is the cash dividend paid at the end of the period, r is the required return in the market on investment. For a zero growth share of common stock, this implies that: Per share value = p0 = d/r where r is the required return. Dividend growth model: a model that determines the current price of a stock as its dividend next period, divided by the discount rate less the dividend growth rate. If the constant growth rate exceeds the discount rate, the stock price is infinitely large. Dividend yield: a stock"s cash dividend divided by its current price. Capital gains yield: the dividend growth rate or the rate at which the value of an investment grows. Common stock: equity without priority for dividends or in bankruptcy.
