Mickelson Corporation will pay a dividend of $2.62 per share next year. The company pledges to increase its dividend by 4.5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company’s stock today?
It depends on when you require the 10% return on your investment. If you require the 10% return in one year, then you will need to pay $26.20. If you wanted to make 10% over 2 years, you would need to invest $53.50. 10% 3 years you would need to invest $82.10. The time frame that you want to make your 10% matters.