# The Fish House increases its dividend each year. The next annual dividend is expected to be $2.80... ## Question: The Fish House increases its dividend each year. The next annual dividend is expected to be$2.80 a share. Future dividends will increase by 3.5% annually.

What is the current value of this stock if the discount rate is 10%?

## Dividend Growth Rate:

In the dividend growth model, the dividend growth rate is an important determination of the price of a stock. If a firm maintains a constant dividend payout ratio, then the dividend growth rate will identical to the firm's growth of earnings per share.

We can use the dividend growth model to compute the price as follows:

• price per share = next dividend / (required return - dividend growth rate)
• price per share = 2.80 / (10% - 3.5%)
• price per share = 43.07

That is, the price of the stock per share is \$43.07.