Estimate dividend growth rate based on the constant dividend

Reference no: EM132198519

Question - TG Corp has paid out the following dividends in the past 10 years:

Year	Quarterly dividend	Annual dividend
2017	0.77	3.08
2016	0.75	3.00
2015	0.73	2.92
2014	0.69	2.76
2013	0.63	2.52
2012	0.57	2.28
2011	0.47	1.88
2010	0.44	1.76
2009	0.42	1.68
2008	0.40	1.60

The average return on equity for TG CORP in the past five years was 13.54% and the payout ratio was 69%. The stock has a forward dividend yield of 3.87%.

Use four methods (arithmetic average growth rate, compound average growth rate, regression, and earnings retention model) to estimate the dividend growth rate for TG CORP based on the above information given.

Assuming that investors require a 12% return (based on CAPM) on its stock, estimate dividend growth rate based on the constant dividend growth model. Explain your final estimate based on (a) and (b).

Reference no: EM132198519

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