The Double Dip Co.is expecting its ice cream sales to decline due to the increased interest in healthy eating.Thus,the company has announced that it will be reducing its annual dividend by 5% a year for the next two years.After that,Double Dip will maintain a constant dividend of $1 a share.Last year,the company paid $1.40 per share.What is this stock worth to you if you require a 9% rate of return?

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The stock's worth is calculated by discounting the expected dividends at the required rate of return. The dividends for the next two years are $1.33 and $1.26, respectively, after a 5% reduction each year. From year 3 onwards, the dividend is constant at $1. The present value of these dividends, discounted at 9%, gives the stock's worth as $11.64.