How Do You Figure The Expected Total Return On Common Stock?
The total return of a stock is the sum total of dividends, capital appreciation and distributions. Stock splits are not part of the equation, as this is an accounting issue and does not reflect any underlying value. Expected total return reflects year-ahead projections for the underlying stock. Study and compute the rate of cash dividend increase for the past five years. Multiply the total of last year’s payments by the annual rate of increase for the previous five years. This total represents the cash dividend component of the expected return. Study recent SEC 10K and 10Q reports (see Resources) and determine whether the company expects to spin off or sell any portion of its businesses and distribute the proceeds to shareholders. Divide the expected value by the number of shares outstanding. Estimate the expected stock price 1 year in advance. The stock price can be determined by brokerage firm recommendations, the rate of price appreciation for the last 10 years or from your own inde
