How to Estimate Dividend Growth Rate?
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While calculating the value of a stock using the dividend discount model, an important input is the assumed growth rate. Analysts can estimate this growth rate using a variety of methods.
- Analysts can observe the historical growth in dividends of the company and assume a future growth rate based on this observation.
- Analysts can observe the dividend growth rate in the industry that the company operates in and use the median industry dividend growth rate.
- Analysts can use the sustainable growth rate calculated using return on equity (ROE), and dividend payout ratio.
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