Constant Growth Model: Dividend Payout Ratios and Stock Price
Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15 percent:
Return on equity Stock A Stock B
Earnings per share $2.00 $1.50
Dividends per share $1.00 $1.00
a. What are the dividend payout ratios for each firm?
b. What are the expected dividend growth rates for each firm?
c. What is the proper stock price for each firm?