Assume Disney just announced its dividend for 2020 would increase to $2.00 and the CEO, Bob Iger, explained that it would be that high or higher for the foreseeable future. Would this increase or decrease your price target for Disney? Please explain why.

· If the dividend expectation is high for a company, then its price target for Disney will increase because the stock price of the company is the sum of present values of all expected future cash flows.

· Also the explanation of CEO of Disney will give signaling effect where dividend payments work like a signals of company’s expected earnings forecasts. And this process will also may increase the price target for Disney.

· We can look at Dividend discount Model, if the dividend expectations or dividend growth rate is high for future, it will increase the price target for Disney.

The constant-growth dividend discount model assumes that company pays regular dividend at constant growth rate for forever therefore intrinsic value of share can be determined by discounting all the future cash flows (dividends) to the present value.

Formula to calculate the current share price by dividend discount model with constant growth rate -

Stock Price P = D1 / (re – g)

Where required variable are -

The cost of equity (re)

P = the current stock price

D1 = dividend for next year

g = constant growth rate of dividend