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Adams Logistics recently paid a $0.80 per share dividend this year. The dividend is expected to...

Adams Logistics recently paid a $0.80 per share dividend this year. The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock is 8%. What is the stock’s current value per share?

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Answer #1

Stock Price :
PV of cash flows from it.

P0 = D1 / [ Ke - g ]
D1 - Div after 1 Year
P0 - Price Today
Ke - Required Rate of return = 8 %
g - Growth rate = 4 %
Recently paid Dvividend D0 = $ 0.80

D1 = D0 (1+g)

= $ 0.80 ( 1+0.04)

= $ 0.80 (1.04)

= $ 0.83

Price of Stock is nothing but PV of CFs from it.
P0 = D1 / [ Ke - g ]
= $ 0.83 / [ 8 % - 4 % ]
= $ 0.83 / [ 4 % ]
= $ 20.75

Stock current value per share = $ 20.75

Please comment if any further explanation is required.

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