Stocks - Leeds School of Business

Why is dividend yield less than 1/r. e?That is, why does price exceed capitalized dividends? Because dividends are expected to grow. To capture this idea, the dividend growth model shows that equity value (P 0) equals capitalized forthcoming dividends (d 1 /r e) plus the present value of subsequent capitalized dividend increments [(d 2 – d 1)/r e]. (Note: this transformation differs … ................
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