Originally Posted by
nextbigthing
If good growth has done its thing, let's say Heartland continue to grow at a long term growth rate (g) of just 3%
Assume they move to a 100% payout ratio making them a divvy stock. Next dividend (D1) is equal to earnings per share, around 10 cents. Let's say a required return (k) of 10%. Ignore tax/imputation for simplicity.
SP = D1/(k-g)
SP = 0.1/(0.1-0.03)
SP = $1.43
This is assuming only 3% growth. Ie the market is seemingly currently factoring in either
a) lower growth than 3%
b) A higher required return than 10%
c) Or the market is discounting the stock for some other factor. Perhaps people are selling to raise some cash, anticipating a cap raising for a takeover of something like Fisher and Paykel which has been rumoured and therefore putting sell pressure on the price? Or perhaps some are anticipating a meltdown soon and are getting out early?
$1.43? Must be on sale at current.