Dividend four years ago (D0) = $1.65 per share. Also, Dividend yesterday (D4) = $2.10 per share. Firstly, we can calculate the growth rate:
Growth rate (g) = (D4 – D0) / D0
g = ($2.10 – $1.65) / $1.65
g = $0.45 / $1.65
g = 0.2727 or 27.27%
Project the dividends for the next five years:
Dividend in the fifth year (D5) = D4 (g * D4)
D5 = $2.10 (0.2727 * $2.10)
D5 = $2.10 $0.5727
D5 = $2.6727 per share
Dividend in the sixth year:
(D6) = D5 (g * D5):
D6 = $2.6727 (0.2727 * $2.6727)
D6 = $2.6727 $0.7282
D6 = $3.4009 per share
Dividend in the seventh year (D7) = D6 5% growth
D7 = $3.4009 (0.05 * $3.4009)
D7 = $3.4009 $0.1700
D7 = $3.5709 per share
So, the company’s dividend in seven years will be $3.5709 per share.
There are 2 components that we need to discuss for total return on the share of stock: Dividend Yield