In the Dividend Growth Model, what does "P0" represent?

In the Dividend Growth Model, "P0" represents the current price of the stock, which is the price at time zero. This variable is critical because it serves as the foundation for the model, which calculates the present value of an expected series of future dividends that are anticipated to grow at a constant rate.

The model relies on the relationship between the stock price and future dividends to estimate the value of a stock based on its expected dividends. Essentially, "P0" provides a snapshot of what investors should be willing to pay for a stock today, considering the future growth of dividends. This value is typically derived by discounting future dividends back to their present value, thus establishing a link between the current stock price and expected future cash flows.

Understanding "P0" as the price of the stock at time zero is fundamental to applying the Dividend Growth Model effectively, as it enables investors to assess whether a stock is overvalued or undervalued based on their dividend growth expectations and required return.