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How to Calculate Future Expected Stock Price

Original post by C. Taylor of Demand Media

The future expected price of a stock is influenced mostly by the cash-flows resulting from dividend payments, according to the Gordan constant growth model. In effect, the dividend payment and its expected annual growth rate will determine the growth rate of the stock itself. Once armed with this growth rate, the compound interest formula will tell you the future expected stock price for any year you enter.

Contents

Step 1

Contact your investment broker, or go online, and find out the current stock price, dividend payout and expected dividend growth rate of the stock.

Step 2

Divide the annual dividend payment by the current stock price. For example, if a stock is currently priced at $80 and offers a $3 annual dividend, you would divide $3 by $80 to get 0.0375.

Step 3

Add the expected dividend growth rate to get the stock's expected growth rate. In the example from the previous step, if the expected dividend growth rate was 5 percent, then your stock would have an expected growth rate of 0.0875.

Step 4

Add 1 to the expected growth rate of 0.0875 to get 1.0875.

Step 5

Raise this figure to the N power, where N is the number of years in the future for which you want to calculate the stock price. In the example, if you wanted to know the stock price two years from now, you would square 1.0875 to get 1.1827.

Step 6

Multiply this by the current stock price to calculate its future expected price for that year. In the example, 1.1827 times $80 gives you an expected stock price of $94.62 in two years.


                   

References

About the Author

C. Taylor has been a professional writer since 2009. He has written for online publications and the "Journal of Asian Martial Arts." Taylor specializes in martial arts, traveling, sciences and computer repair. He received a Master of Science in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences from the College of Charleston.


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