Wachovia [WB] is a financial services company that is often held in the portfolios of investors who are interested in earning dividend income. These investors are interested in the expected growth rate in dividends for such companies because they often rely on dividends as part of their annual income.
a. Find the last dividend paid by Wachovia. [Hint: Click on Overview/Full Reports/Thomson Reports/Stock Section.]
b. Calculate the growth rate of the expected dividends for Wachovia using the forecasted figures for the next two years. [Hint: Click on Estimates and Consensus Estimates.]
c. If you are a Wachovia stockholder and your required rate of return is 8 percent, what is the intrinsic value of the stock?
d. What does the term intrinsic value mean?
e. Bank of America [BAC] is a competitor of Wachovia. Calculate the growth rate of the expected dividends for Bank of America using the last dividend the company paid.
f. Would you rather own Wachovia or Bank of America if you are primarily concerned with the expected growth in future dividends? Explain.