Wize University Introduction to Finance Textbook > Equity Valuation
Ex-Dividend and Cum-Dividend Price
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Ex-Dividend Price
In most cases, a stock is priced based on all future dividends because the dividend being paid today has already been paid, this is called a stock’s ex-dividend price
Cum-Dividend Price
If a stock has not yet paid its current dividend, the price of the stock is higher because sellers are factoring in the dividend, this is called a stock’s cum-dividend price and is computed by adding the amount of the current dividend to the ex-dividend price.
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Example: Cum-Dividend Price
ABC Inc. has not yet paid its current dividend of $2 per share. Dividends are expected to grow at 3% per year indefinitely and the required return on their shares is 8% per year.
What is the ex-dividend price of the stock?
What is the cum-dividend price of the stock?
Practice: Cum-Dividend Price
Last year, Rogers Inc. paid a $3.30 dividend per share and has been increasing their dividend amount by 3% per year, this growth rate is expected to continue indefinitely, and the company has not yet paid its current dividend which is expected in the coming days.
What is the current price of the stock if the required rate of return is 12%?