Today's price from expected dividends and a target price

In short

• With no dividend: $P_t = E(P_{t+1}) / (1 + r_e)$, where $r_e$ is the required return on equity.
• With a dividend at the end of the year: $P_t = [E(P_{t+1}) + E(D_{t+1})] / (1 + r_e)$.
• Over $n$ years: discount each expected dividend and the expected price at year $n$ (the target price).
• Comparing the two present values shows how much of today's price rests on dividends versus the future price.
• Over normal horizons the future price usually dominates; dividends dominate only for very long horizons or very high discount rates.