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The Constant Dividend Growth Model

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Harrison Cothiers' stock currently sells for $20 a share. It just paid a dividend of $1.00 a share (that is , D 0 = $1.00). The dividend is expected to grow at a constant rate of 6 percent a year. What stock price is expected 1 year from now? What is the required rate of return?

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Harrison Clothiers' stock currently sells for $20 a share. It just paid a dividend of $1.00 a share (that is , D 0 = $1.00). The dividend is expected to grow at a constant rate of 6 percent a year. What stock price is expected 1 year from now? What is the required rate of return?

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The stock price a year from now is merely the current stock price times 1 plus the expected dividend growth rate. Thus, the stock price a year from now is $20.00*1.06, or ...

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