Question
Fabric Val dOr common stock is currently trading at $35 per unit on the Toronto Stock Exchange. The last annual dividend distributed (per share) is
Fabric Val dOr common stock is currently trading at $35 per unit on the Toronto Stock Exchange. The last annual dividend distributed (per share) is $2.25 per share. Financial analysts expect the company to pay the following dividends over the next few years:
Year | D1
| D2
| D3
| D4
| D5 |
Dividend | 2.25* (1.05) | D1 *(1.09)
| D2 *(1.07)
| D3 *(1.05)
| D4 *(1.03)
|
The dividend at the end of year 5 will be D4 *(1.03) and will grow at the same rate of 3% indefinitely. Given the risk involved, the annual return required by investors on this type of security is 13%. Currently, is the common stock of Fabric Val d'Or overvalued or correctly valued by the market?
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