Stock Market

You expect the dividend to grow steadily at a rate of 4 percent per year. What is the expected stock price three years from now?

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Wiki User
2006-09-15 13:39:06

The stock price of a growth stock is only fractionally dependent

on the dividend. I assume that you are talking about a growth stock

since you ask about the future price of the stock. There are many

other factors that are far more influential in the price of a stock

than the dividend. Some, but not nearly all, are: 1. The earnings,

and expected future earnings, of the company and it's market

sector. 2. The market capitalization of the stock. This is the

number of shares times the price per share. 3. The

earnings-per-share. A stock with an 18X earnings-per-share might be

overvalued if the average EPS of its direct competitors was 14X.

Conversely, if the EPS of its competitors were 22X as an average,

the stock might be undervalued. 4. Quality of Management.

Confidence in management is an important factor. 5. Company

buy-back. If a company is actively buying back its stock there are

fewer shares outstanding which could, over time, help the price to

rise. Always remember, the stock market is only an auction house.

If there are more buyers wanting to own the stock than there are

sellers willing to sell, the movement of the stock price will be

higher. And, of course, vice versa.


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