Finance Assignment Help With Estimating The Growth Rate

Estimating the growth rate, g

The growth rate of dividends will depend on the growth in earnings and the percentage of earnings paid out as dividends, as opposed to being retained by the company. Many analysts assume that the payout ratios are relatively stable in which case the growth rate of dividends equals the growth rate of earnings. The growth rate is determined by the amount of earnings retained and the return on equity that it can generate on these earnings.

g = earnings retention rate x return on equity

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