The value of an asset depends on the cash flow it is expected to provide over the holding period. Ordinary shares are riskier than bonds or debentures, and some shares are riskier than others. The investors/stock traders would, therefore, commit funds on a share only if he/she is convinced about the rate of return being commensurate with risk. Trading in stock exchange can be fruitful only if you plan it properly. If you a value trader or investor, who is seeking to grow the financial portfolio with share investment buy & hold strategy. Then this indicator is the right tool for you.
With this stock calculator, you can find the valuation of your ordinary shares. At price, you should buy your share in order get a certain profit with a dividend. In this calculator, you just need put share target price (price where you will be selling your shares to get profit) then dividend amount & lastly required the rate of return in percentage.
Here the required rate of return can be for any time periods, generally, as dividend get paid annually, so the rate of return here indicate for one year.
Example ABC company share is expected to touch $450 one year from now. The company is expected to declare a dividend of $25 per share What is the price at which an investor would be willing to buy if his/her required rate of return is 15%? He/she actually needs to buy the share at $413.04 price in order to get 15% return.
People holds common stock mainly for two reasons:
- To obtain dividends in a timely manner
- To get higher amount when sold the share.
Generally, shares are not held in perpetuity. An investor buys the shares, holds them for some time during which he gets dividends, and finally sells it off to get capital gains.
Expected Share Price
With this stock calculator, you calculate the expected share price with expected dividend amount, the required rate of return & stock growth rate.
Example, ABC company share is trading at $180. The company is expected to grow at 8% per annum and the dividend expected to be paid off is $8. If the rate of return is expected to be 12%, what is the price of the share one would be expecting to pay today? Expected share price will be actually $200.
How Can Expected Share price calculator help investors?
Investor or traders can gauge what price they are expecting for share. If they sell their existing share or interested to buy a new share for an ever growing company. More example, F (Ford Motor Company at NYSE) quoting at $12. Dividend paid $0.15 per share. Earnings growth rate is 11%. Then the share price will be $15.
Note: The required rate of return must be greater than the stock growth rate in order to use the dividend growth model for common stock valuation.