Calculate the Required Return for AT&T using the DDM

What is the required return for AT&T under the Dividend Discount Model (DDM)?

Given that AT&T is currently trading for $19.47 and paid an annual dividend of $1.38 last year with dividends historically growing by 2% per year.

Required Return Calculation:

The required return for AT&T using the Dividend Discount Model (DDM) is approximately 9.1%.

Under the Dividend Discount Model (DDM), the required return for a stock is calculated using the formula: Required Return = Dividend / Stock Price + Dividend Growth Rate.

Let's calculate the required return for AT&T:

Given Data:
  • Current stock price of AT&T: $19.47
  • Annual dividend paid last year: $1.38
  • Dividend growth rate: 2% per year
Calculation:
  1. Divide the annual dividend by the stock price:
    • Dividend / Stock Price = $1.38 / $19.47 = 0.071
  2. Add the dividend growth rate to the result from step 1:
    • 0.071 + 0.02 = 0.091

Therefore, the required return for AT&T under the DDM is approximately 9.1%.

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