Maximum Stock Price
Approximates the maximum per-share price for a dividend-paying stock by compounding the dividend yield over the holding period on top of the price-only maximum, with an optional margin of safety discount.
When to use: Use for a dividend-paying stock when part of the return comes from distributions. Leave MOS blank for the unadjusted maximum.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| P0 | Maximum Stock Price | Most you should pay per share today | $ |
| E0 | Current EPS | Trailing earnings per share today | $ |
| g | Earnings Growth Rate | Expected annual EPS growth as a decimal | % |
| n | Holding Period | Years held before exit | years |
| ExitPE | Exit P/E Ratio | Expected price-to-earnings multiple at exit | integer |
| r | Required Return | Annual required rate of return as a decimal | % |
| DY | Dividend Yield | Annual dividend yield as a decimal | % |
| MOS | Margin of Safety | Discount applied for valuation cushion as a decimal | % |
Real-Life Examples
Example 1: Dividend Aristocrat (no MOS)
A consumer staples name earns $4.00 EPS, grows 6%, yields 3%, exits at 18× in 10 years. You require 9% and apply no margin of safety.
Given
Step-by-Step
Compounding the 3% dividend yield over 10 years lifts the buy price from $54.46 (price-only) to $73.18.
Example 2: High-Yield Utility with 30% MOS
A utility earns $6.00 EPS, grows 3%, yields 4%, exits at 14× in 5 years. You require 8% and demand a 30% margin of safety.
Given
Step-by-Step
Compounded dividends lift the price-only $66.27 to $80.62, then the 30% MOS pulls it down to $56.43.
Frequently Asked Questions
The formula assumes the dividend yield stays roughly constant and that distributions are reinvested at the dividend rate over the full holding period. A full dividend discount model values each expected payment as a discrete cash flow — more precise, but heavier to compute.
Compounding the yield separately keeps the price-appreciation discount (r) and the dividend contribution mathematically distinct. It mirrors how total return chains multiplicatively in real life: a 9% required return on price and a 3% yield are combined as (1+r)^n in the denominator and (1+DY)^n in the numerator.
For high-yield, slow-growth stocks (utilities, REITs, telecoms) where distributions are a meaningful slice of total return. For low-yield growth stocks the gap to the standard max-price formula is small.
No — leave MOS blank (or set it to 0) for the unadjusted maximum price. Enter a decimal between 0 and 1 to discount that price by the chosen percentage.