non-constant growth stock?

Question

For non-constant growth stock, why are its dividend yield and capital gains yield not constant during their non-constant growth period?

Answer 1

Sounds like their sales are all over the place.

Answer 2

1

Answer 3

Growth stocks rarely pay dividends -- so their dividend rate probably would be constant -- at zero.

But let's consider a dividend paying company whose sales are way up one year and then not quite as good. You might think they would pay a huge dividend after the good year. The problem is that the market expects dividends to go up each year -- or at least stay the same. They punish companies that lower dividends. So -- if the company has a good year, they raise dividends to a level tha they think they can sustain. One good year means a small increase, not a big increase for these firms.

Now -- let's look at stock prices. Prices reflect both current returns and future expecte growth. If profits are unknown, the market will price the stock according to its expectation. If the current value comes in higher than the expectation, the price junps up & if it somes in lower, the price drops. This has an uneven effect on capital gains.

Answer 4

First get the PV of next year's dividend of $2.25, N 1, R 16%; add the PV of the dividend in yr 2 of $2.925, N 2, R 16%. Then get the price of a constant growth stock, (at T 2) with Next Div of 3.10 / 16% - 6%. That's $31.00. Then get its PV, with N 2, R 16%. Today's price will be the sum of the 3 PV's.

Answer 5

Sounds like the competition has entered the marketplace and are wreaking havoc on the stock while establishing themselves.