Question

DPS CALCULATION

Weston Corporation just paid a dividend of $1.5 a share (i.e., D₀ = $1.5). The dividend is expected to grow 10% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places.

D₁ = $
D₂ = $
D₃ = $
D₄ = $
D₅ = $

Answer 1

Solution :

As per the information given in the question we have

D0 = $ 1.5

Growth rate of dividend for years 1 to 3 = 10 % ; Years 4 to 5 = 5 %

Thus we have

D0 = $ 1.5

D1 = D0 * ( 1 + g % ) = $ 1.5 * ( 1 + 0.10 ) = 1.5 * 1.10 = $ 1.6500

D2 = D1 * ( 1 + g % ) = $ 1.6500 * ( 1 + 0.10 ) = $ 1.6500 * 1.10 = $ 1.8150

D3 = D2 * ( 1 + g % ) = $ 1.8150 * ( 1 + 0.10 ) = $ 1.8150 * 1.10 = $ 1.9965

D4 = D3 * ( 1 + g % ) = $ 1.9965 * ( 1 + 0.05 ) = $ 1.9965 * 1.05 = $ 2.0963

D5 = D4 * ( 1 + g % ) = $ 2.0963 * ( 1 + 0.05 ) = $ 2.0963 * 1.05 = $ 2.2011

Thus the Expected Dividend per share for each of the next five years is as follows :

DPS for Year 1 = D1 = $ 1.6500

DPS for Year 2 = D2 = $ 1.8150

DPS for Year 3 = D3 = $ 1.9965

DPS for Year 4 = D4 = $ 2.0963

DPS for Year 5 = D5 = $ 2.2011