Hayden Ltd intends to make its first dividend payment 5 years(s) from now. It then intends to pay dividends annually thereafter. The company has announced it expects the first three dividends to all be of the magnitude of around 5 cents per share. Subsequent dividends will then be paid out at a set rate of 50% of earnings. Your earnings forecasts for this coming year suggest that $0.20 Earnings per Share (EPS) is the most likely outcome. You are then forecasting EPS growth of around 3.2% p.a. in perpetuity. What would be your valuation of Hayden Ltd's shares, given you require a 15% p.a. return? State your answer in dollars to three decimal places
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Hayden Ltd intends to make its first dividend payment 5 years(s) from now. It then intends to pay dividends annually thereafter. The company has announced it expects the first three dividends to all be of the magnitude of around 5 cents per share. Subsequent dividends will then be paid out at a set rate of 50% of earnings. Your earnings forecasts for this coming year suggest that $0.20 Earnings per Share (EPS) is the most likely outcome. You are then
State your answer in dollars to three decimal places.
Step by step
Solved in 2 steps
