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IM, Incorporated, a renowned company in the market, has recently announced its next dividend payment of $1.87 per share. This article aims to provide investors with insights into the required return on the stock, taking into account the anticipated growth rate of 4.3 percent.
To begin the analysis, it is crucial to understand the concept of required return. Required return refers to the minimum rate of return that an investor demands on an investment to compensate for the level of risk associated with that investment. In the case of IM, Incorporated, the required return is essential to determine whether the current stock price of $37 per share is justifiable.
To calculate the required return, we need to consider the dividend payment and the expected growth rate. The anticipated growth rate of 4.3 percent indicates that IM, Incorporated's dividends will increase by this percentage indefinitely. By using the dividend discount model (DDM), we can derive the required return.
Using the DDM formula (required return = dividend / stock price), we can calculate the required return as follows:
Required return = $1.87 / $37 = 0.0505 or 5.05%
Therefore, the required return for IM, Incorporated is 5.05%. This means that investors would expect a minimum return of 5.05% to justify the current stock price of $37 per share.
The required return is a crucial factor for investors to consider when making investment decisions. It helps investors evaluate the potential profitability and risk associated with a particular stock. If the required return is significantly higher than the expected return, it may indicate that the stock is overvalued. Conversely, if the required return is lower than the expected return, it may suggest that the stock is undervalued.
Ticker: IM
