5. In the text, we discussed using the dividend growth model to estimate a stock’s intrinsic value. To keep things as simple as possible, let’s assume at first that XOM’s dividend is expected to grow at some constant rate over time. Then its intrinsic value would equal D1/(rs − g), where D1 is the expected annual dividend 1 year from now, rs is the stock’s required rate of return, and g is the dividend’s constant growth rate. To estimate the dividend growth rate, it’s helpful first to look at XOM’s dividend history. Staying on the current Web page (WORLDSCOPE—

INCOME STATEMENT RATIOS), you should immediately find the company’s annual dividend for the past several years. On the basis of this information, what has been the average annual dividend growth rate? Another way to obtain estimates of dividend growth rates is to look at analysts’ forecasts for future dividends, which can be found on the ESTIMATES tab. Scrolling down the page, you should see an area marked Consensus Estimates and a tab under AvailableMeasures.

Here you click on the down arrow key and select Dividends Per Share (DPS).What is the median year-end dividend forecast? You can use this as an estimate of D1 in Chapter 7: Stocks, Stock Valuation, and Stock Market Equilibrium 301 your measure of intrinsic value. You can also use this forecast along with the historical data to arrive at a measure of the forecasted dividend growth rate, g.