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Chapter 17

Question 7

Estimating growth using past dividends

A company has paid the following dividends per share over the past few years:

20X1 25.0 cents
20X2 25.8 cents
20X3 26.5 cents
20X4 27.4 cents
20X5 28.1 cents

Estimate the annual growth rate in dividends.

1/n
g = (D 0/D n) – 1
1/4
g = (28.1/25.0) – 1

g = 0.030 or 3.0%

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