Chapter: 10 Stock Valuation

Section: 6 Constant Growth Dividend Discount Model

In the real world, it is unlikely to find a stock with constant dividends and most would experience some level of growth. Assuming that the stock in the above example is likely to experience an annual growth of 3%, it will be valued as:

Po =




Po =






 0.12 - 0.03

= SR 22.88


D1 = Dividend to be paid in next year; calculated as SR 2 X 1.03  =  SR 2.06
g = Annual growth rate of dividends