The O\'Malley Company has paid an annual dividend of $2 per share for some time.

Question

The O'Malley Company has paid an annual dividend of $2 per share for some time. Recently the board of directors voted to grow the dividend by 6% from now on. What is the most you would be willing to pay for a share of O'Malley if you expect a 10% return on your stock investments? The Denver Dairy Company has just come up with a new lactose free dessert product for people who can't eat or drink ordinary dairy products. Management expects the new product to fuel sales growth at 30% for about two years. After that competitors will copy the idea and produce similar products, and growth will return to about 3% which is normal for the dairy industry in the area. Denver Dairy recently paid an annual dividend of $2.60, which will grow with the company. The return on stocks like the Denver Dairy Company is typically around 10%. What is the most you would pay for a share of Denver Dairy?

Explanation / Answer

The O'Malley Company has paid an annual dividend of $2 per share for some time.

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