This stock investment calculator estimates the expected rate of return and the value of your investment by considering the current stock price, dividends per share and the growth rate. There is in depth information on this topic below the tool.
How does this stock investment calculator work?
This investment calculator approximates the expected return rate of a stock by considering these variables that should be provided:
- Dividend per share now (DPS).
- Stock growth rate which (SGR) is the relative increase of the dividends received year per year.
- Current price per share today (CPS).
- No. of share you own (NSO).
The algorithm behind this stock investment calculator is based on the formulas detailed in the following rows:
- Computing the growth factor A = 1 + SGR*0.01
- Estimating the future dividend value B = DPS * A
- Computing the growth ratio C = B / CPR
- Calculating the Expected rate of return on stock D = (C + SGR*0.01) * 100
- Then these figures are calculated:
- The recommended sell price per share by taking into consideration the data given SLL = B / (D*0.01 – SGR*0.01)
- The total revenue in case of selling the stock SL = SLL * NSO
- Dividend value received in the 1st year E = B
- Total value of dividends received in the 1st year F = B * NSO
- Dividend value received in the 2nd year G = E * (1 + SGR * 0.01)
- Total value of dividends received in the 2nd year H = G * NSO
- Dividend value received in the 3rd year I = G * (1 + SGR * 0.01)
- Total value of dividends received in the 1st year J = I * NSO
- Total cumulative dividends you could receive in 3 years K = F + H + J
Expected rate of return (ERR) definition
In finance, often abbreviated as ERR this is an indicator used by investors from all areas to anticipate the future value an investment will return. Practically it helps investors forecast how well in terms of return an investment will generate.
As explained above, in stocks evaluation the formula of the ERRincludes both the income from the increase in the share price and the dividend growth.
Even though the expected rate of return figure cannot be taken solely as an argument when analyzing an investment as it does not take account of the probability and risk associated with the scenario of generating a specific rate of return, it is very often used as it allows anyone compare between multiple potential investment opportunities.
Example of a result
Let’s assume that someone holds a stock of 2,000 shares at Company EX, the dividends received this year equal $5/share, the stock growth rate is in average of 10% while the current price per share now is $50. Let’s figure how profitable is this stock investment:
■ Expected rate of return on stock = 21.00%
■ At this expected rate of return, in case you would like to sell your stock it would be recommended to do it at a rate of $55.00, while the total you could get after selling your stock would be $110,000.00
■ Roughly estimate of the value of the dividends you can get:
- In the 1st year the dividend per share will be = $5.50, which means you will get a total dividend of $11,000.00
- In the 2nd year the dividend per share will be = $6.05, which means you will get a total dividend of $12,100.00
- In the 3rd year the dividend per share will be = $6.66, which means you will get a total dividend of $13,310.00
Total cumulative dividends you could receive in 3 years = $36,410.0028 Feb, 2015 | 0 comments