Analize the following The value of the dividend that investors expect corporatio

Question

Analize the following

The value of the dividend that investors expect corporation B to pay one year from today is taking the difference from the stock prices of the current year and we have to divide it by 1-payout ratio.


120 - 113 / 1 - 0.30
=
7 / 0.7
=
10 So the dividend value for the Corporation B would be 10 in one year.


The dividend rate may be quoted in terms of the dollar amount each share receives (dividends per share, or DPS), or It can also be quoted in terms of a percent of the current market price, which is referred to as the dividend yield. A company's net profits can be allocated to shareholders via a dividend, or kept within the company as retained earnings. A company may also choose to use net profits to repurchase their own shares in the open markets in a share buyback. Dividends and share buy-backs do not change the fundamental value of a company's shares. Dividend payments must be approved by the shareholders and may be structured as a one-time special dividend, or as an ongoing cash flow to owners and investors.

Dividend Definition | Investopedia (Investopedia)
http://www.investopedia.com/terms/d/dividend.asp

Explanation / Answer

Retention ratio is the compensating ratio for dividend pay-out ratio. Both add upto 1. Whatever is not paid out as dividends to shareholders is retained in the business. Both are expressed in terms of Net Income after tax.- and influence the before & after market -price of the stock. Dividends and retained earnings - are both different slices of the same bread.

Dividend when expressed in relation to market price becomes the yield to the investor - which in turn decides the market capitalisation of the share.Market price of the share is the present value of future cash flows in the form of dividends for the share, which in turn decides the fraction that is going to be retained in the business. This way, all these are intertwined - one decidesthe other.

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